Question

Bentz Corporation bought and sold several securities during 2013. Listed below is a summary of the...

Bentz Corporation bought and sold several securities during 2013. Listed below is a summary of the transactions:

Feb. 17

Purchased $102,000 of treasury 6% bonds at par plus accrued interest of $1,000. The security is to be held for short-term profits.

April 10

Purchased 500 ordinary shares of Gauges Ltd at $140 per share. This security will be held for an unspecified period of time.

August 8

Sold 100 shares of Gauges Ltd. for $150 per share.

October 5

Sold half of the treasury bonds for $51,500 plus accrued interest of $300

Required:

Prepare the journal entries for the above transactions. Show calculations.

Problem- 2

On January 1, 2013, American Corporation purchased 25% of the outstanding ordinary shares of Short Supplies for $210,000 cash. On that date, Short's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2013, was $80,000. During 2013, Short also paid cash dividends in the amount of $24,000.

Required:
Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2013.

Problem -3

Patrick Company purchased 50 Issac Company 8%, 10-year, €1,000 bonds on January 1, 2020, for €50,000. The bonds pay interest annually. On January 1, 2021, after receipt of interest, Patrick Company sold 30 of the bonds for €29,500.

Required:

Prepare the journal entries to record the transactions described above.

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Answer #1
Journal Entries
Date Account Titles and Explanation Debit Credit
Feb. 17 Investment in treasury Bond 102,000
Interest Receivable       1,000
Cash 103,000
(to record purchase of treasury bonds)
Apr. 10 Investment in Gauges Ltd.(500*140)     70,000
Cash     70,000
(to record purchase of shares of Gauges Ltd.)
Aug. 8 Cash(150*100)     15,000
Gain on Sale of Investment in Gauges inc       1,000
Investment in Gauges Ltd(140*100)     14,000
(to record sale of shares of Gauge Ltd.)
Oct. 5 Cash(51,500+300)     51,800
Investment in treasury Bond(102,000/2)     51,000
Interest Earned          300
Gain on Sale of Investment in Bond          500
(to record sale of Half Treasury bonds)
Original Investment 210,000
Share of Net Income(80,000*25%)     20,000
Less: Cash Dividend(24,000*25%)       6,000
Balance, Dec. 31 224,000

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