QUESTION 13 50 Instructions Prepare a journal entry for the

QUESTION 13 50 Instructions: Prepare a journal entry for the receipt of the interest from Knight on December 31 shares of Brown stock for $26,250 DARREN C d of 34,000

Solution

BALCOM CORPORATION:

Date

Accounts Title and Explanation

Debit

Credit

Jan1

Investment in Bonds

65000

Cash

65000

Dec 31

Cash

5940 (1000*66*9%)

Investment in Bonds

100 (66000-65000)/10

Interest income

6040

Note: Maturity of Bonds is taken as 10 years because it is not given in question.

DAVIS COMPANY:

Purchase price per share of Brown = Total price paid / number of shares

= 141500/8500 = 16.647

Purchase price of 1500 stock = 16.647*1500 = 24970.5

Sale price of 1500 stock = 26250

Gain on sale of shares = 26250 - 24970.5 = 1279.5

Date

Accounts Title and Explanation

Debit

Credit

Dec 23

Cash

26250

Common stock

24970.5

Gain on sale of shares

1279.5

DARREN CORPORATION:

Cost price of solar = 6000*18 = 108000

Fair value of solar = 6000*21 = 126000

Change in fair value of solar = 126000 – 108000 = 18000

Cost price of lunar = 34000*28 = 952000

Fair value of lunar = 34000*16 = 544000

Change in fair value of lunar = 544000 – 952000 = (408000)

1) Adjusting entries:

Date

Accounts Title and Explanation

Debit

Credit

31 Dec,2019

Investment in Solar

18000

Profit and loss

18000

Profit and loss

408000

Investment in lunar

408000

2) These investments would be classified as “Investment in trading securities” and will be shown as “Current assets” on the asset side of balance sheet.

Date	Accounts Title and Explanation	Debit	Credit
Jan1	Investment in Bonds	65000
	Cash		65000
Dec 31	Cash	5940 (1000*66*9%)
	Investment in Bonds	100 (66000-65000)/10
	Interest income		6040
Note: Maturity of Bonds is taken as 10 years because it is not given in question.