On December 31, 2013, Lujack Co. held the following short-term available-for-sale securities. Cost Fair Value Nintendo Co. common stock $ 77,500 $ 84,475 Atlantic bonds payable 31,000 28,830 Kellogg Co. notes payable 55,800 52,452 McDonald's Corp. common stock 104,625 99,394 Lujack had no short-term investments prior to the current period. Prepare the December 31, 2013, year-end adjusting entry to record the fair value adjustment for these securities. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

On December 31, 2013, Lujack Co. held the following short-term available-for-sale securities.   

	Cost				Fair Value
Nintendo Co. common stock		$	77,500			$	84,475
Atlantic bonds payable			31,000				28,830
Kellogg Co. notes payable			55,800				52,452
McDonald's Corp. common stock			104,625				99,394

 

Lujack had no short-term investments prior to the current period. Prepare the December 31, 2013, year-end adjusting entry to record the fair value adjustment for these securities. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)

 

Explanation:

Computation of Fair value adjustment

 

	Cost		Fair value			Unrealized gain (loss)
Nintendo Co. common stock	$	77,500		$	84,475
Atlantic bonds payable		31,000			28,830
Kellogg Co. notes payable		55,800			52,452
McDonald's Corp. common stock		104,625			99,394
	$	268,925		$	265,151		$	(3,774	)

 

Record fair value adjustment for securities ($265,151 − $268,925) = $(3,774)

Prepare journal entries to record the following transactions involving the short-term securities investments of Duke Co., all of which occurred during year 2013. a. On March 22, purchased 800 shares of RIP Company stock at $19 per share plus a $350 brokerage fee. These shares are categorized as trading securities.

Prepare journal entries to record the following transactions involving the short-term securities investments of Duke Co., all of which occurred during year 2013.

 

a.	On March 22, purchased 800 shares of RIP Company stock at $19 per share plus a $350 brokerage fee. These shares are categorized as trading securities.

b. On September 1, received a $3 per share cash dividend on the RIP Company stock purchased in transaction a.   c. On October 8, sold 400 shares of RIP Co. stock for $29 per share, less a $340 brokerage fee.   Explanation: a. Purchased 800 shares of stock for (800 × $19) + $350 brokerage fee = $15,550 b. Received dividend on stock (800 × $3) = $2,400 c. Sold 400 shares of stock. Cash = [(400 × $29) − $340] = $11,260 Short-term investments—trading (RIP) = ($15,550/2) = $7,775

On January 1, 2013, Eagle borrows $33,000 cash by signing a four-year, 6% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2013 through 2016. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

On January 1, 2013, Eagle borrows $33,000 cash by signing a four-year, 6% installment note. The note requires four equal total payments of accrued interest and principal on December 31 of each year from 2013 through 2016. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.)

 
1.

Compute the amount of each of the four equal total payments.

 

2.

Prepare an amortization table for this installment note. (Round your intermediate calculations to the nearest dollar amount.)

 

Explanation: 1. 

Amount of each payment	=	Initial note balance / Table B.3 value
	=	$33,000 / 3.4651 = $9,524

2.

Beginning Balance = Prior Ending Balance

Debit Interest Expense = 6% × Beginning Balance

Debit Notes Payable = Credit Cash – Debit Interest Expense

Credit Cash = computed

Ending Balance = Beginning Balance – Debit Notes Payable

On January 1, 2013, Shay issues $260,000 of 8%, 20-year bonds at a price of 96.75. Six years later, on January 1, 2019, Shay retires 20% of these bonds by buying them on the open market at 105.25. All interest is accounted for and paid through December 31, 2018, the day before the purchase. The straight-line method is used to amortize any bond discount.

On January 1, 2013, Shay issues $260,000 of 8%, 20-year bonds at a price of 96.75. Six years later, on January 1, 2019, Shay retires 20% of these bonds by buying them on the open market at 105.25. All interest is accounted for and paid through December 31, 2018, the day before the purchase. The straight-line method is used to amortize any bond discount.

1.

How much does the company receive when it issues the bonds on January 1, 2013?

Cash proceeds from sale of bonds at issuance ($260,000 × 96.75%) = $251,550  

2.

What is the amount of the discount on the bonds at January 1, 2013?

Explanation:

Discount at issuance
Par value	$	260,000
Cash issue price (from part 1)		(251,550	)
Discount at issuance	$	8,450

3.

How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2013, through December 31, 2018?

The first six years (from 1/1/13 to 12/31/18) equals 30% of the bonds’ 20-year life. Therefore, the total amortization equals 30% of the total discount (since straight-line amortization is being used), which is $8,450 × 30%, or $2,535.

4.

What is the carrying (book) value of the bonds and the carrying value of the 20% soon-to-be-retired bonds as of the close of business on December 31, 2018?

Discount at issuance (from part 2)	$	8,450
Less amortization (from part 3)		(2,535	)
Remaining discount	$	5,915

   

	Entire Group				Retired 20%
Par value	$	260,000			$	52,000
Remaining discount		(5,915	)			(1,183	)
Carrying value	$	254,085			$	50,817

5.

How much did the company pay on January 1, 2019, to purchase the bonds that it retired?

Cash purchase price

($260,000 × 20%) × 105.25% = $54,730

6.

What is the amount of the recorded gain or loss from retiring the bonds?

Loss on retirement
Cash paid (from part 5)	$	54,730
Carrying value (from part 4)		(50,817	)
Loss on retirement	$	3,913

7.

Prepare the journal entry to record the bond retirement at January 1, 2019.

Woodwick Company issues 8%, five-year bonds, on December 31, 2012, with a par value of $103,000 and semiannual interest payments. Semiannual Period-End Unamortized Premium Carrying Value (0) 12/31/2012 $ 8,171 $ 111,171 (1) 6/30/2013 7,354 110,354 (2) 12/31/2013 6,537 109,537 Use the above straight-line bond amortization table and prepare journal entries for the following. (a) The issuance of bonds on December 31, 2012. (b) The first interest payment on June 30, 2013. (c) The second interest payment on December 31, 2013.

Woodwick Company issues 8%, five-year bonds, on December 31, 2012, with a par value of $103,000 and semiannual interest payments.

   

Semiannual Period-End			Unamortized Premium			Carrying Value
(0)	12/31/2012		$	8,171		$	111,171
(1)	6/30/2013			7,354			110,354
(2)	12/31/2013			6,537			109,537

   

Use the above straight-line bond amortization table and prepare journal entries for the following.

(a)	The issuance of bonds on December 31, 2012.
(b)	The first interest payment on June 30, 2013.
(c)	The second interest payment on December 31, 2013.

Explanation:

(b)

Premium on Bonds Payable = $8,171 – $7,354 = $817

Cash = $103,000 × 8% × 1/2 = $4,120

(c)

Premium on Bonds Payable = $7,354 – $6,537 = $817

Cash = $103,000 × 8% × 1/2 = $4,120