1 On February 15 Jewel Company buys 7300 shares of Marcelo C

1/ On February 15, Jewel Company buys 7,300 shares of Marcelo Corp. common stock at $28.56 per share plus a brokerage fee of $410. The stock is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.18 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.33 per share less a brokerage fee of $265. The fair value of the remaining shares is $29.53 per share. The impact on Jewel’s net income as a result of its investment in Marcelo Corp. was a(n) (Round your intermediate dollar values to the nearest dollar amount):

Multiple Choice

Increase to income of $3,336.

Increase to income of $5,881.

Decrease to income of $8,614.

Increase to income of $10,955.

Decrease to income of $2,341.

2/ A company has an investment in 7% bonds with a par value of $210,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company\'s year-end) would be:

Multiple Choice

$14,700.

$7,350.

$3,675.

$1,225.

$2,450.

Solution

1. Answer: Increase to income of $10955

Note: Change in the fair value will be reported as a part of the stockholders\' equity and excluded from the net income in income statement.

2. Answer: $3675

Amount of interest accrued on December 31 will be from the last interest payment date i.e. October 1 to December 31 i.e. for 3 months

Interest accrued = $210000 x 7% x 3/12 = $3675