EXERCISES
Parnell Industries buys securities to be available for sale when Various circumstances warrant, not to profit from short-term differences in price and transactions related not necessarily to hold debt securities to maturity. The following selected to securities transactions relate to investment activities of Parnell Industries whose fiscal available for sale year ends on December 31. No investments were held by Parnell at the beginning of the year. In Class #1
2016 March 1
Purchased 2 million Platinum Gems, Inc. common shares for $124 million, including brokerage fees and commissions. April 13 Purchased $200 million of 10% bonds at face value from Oracle Wholesale Corporation. July 20 Received cash dividends of $3 million on the investment in Platinum Gems, Inc. common shares. October 13 Received semiannual interest of $10 million on the investment in Oracle bonds. October 14 Sold the Oracle bonds for $205 million. November 1 Purchased 500,000 SPI International preferred preferred shares for $40 million, including brokerage fees and commissions. December 31 Recorded the necessary adjusting entry(s) relating to the investments. The market prices of the investments are $64 per share for Platinum Gems, Inc. and $74 per share for SPI International preferred shares. Required: 1. Prepare the the appropriate journal entry for each transaction or event. 2. Show the amounts that would be reported on the company’s 2016 income statement relative to these investments. 2017 January 25 Sold half the Platinum Gems, Inc. shares for $65 per share. March 1 Sold the SPI International preferred shares for $78 per share. December 31 Recorded the necessary adjusting entry(s) en try(s) relating to the investments. The market price of the investment is $68 per share for Platinum Gems, Inc.
In Class #2 Various investment securities
At December 31, 2016, McKnight Brothers Corp. had the following investments that were purchased during 2000, its first year of operations: Cost
F air Value
Trading Securities: Security A $ 700,000 B 210,000 Totals $ 910,000
$ 725,000 200,000 $ 925,000
Securities Available for Sale: Security C $ 500,000 D 850,000 Totals $1,350,000
$ 560,000 865,000 $1,425,000
Securities to Be Held to Maturity: Security E $ 970,000 F 412,000 Totals $1,382,000
$ 980,000 409,000 $1,389,000
No investments were sold during 2016. All securities except Security D and Security F are considered short-term investments. None of the market changes is considered permanent. Required: Determine the following amounts at December 31, 2016: 1. Investments reported as current assets. 2. Investments reported as noncurrent assets. 3. Unrealized gain (or loss) component of income before taxes. 4. Unrealized gain (or loss) component of shareholders’ equity.
In Class #3 Equity method; purchase; investee income; dividends
As a long-term investment at the beginning of the fiscal year, Paper Products International purchased 35% of Reed’s Restaurant Supplies, Inc.’s 12 million shares for $73 million. The fair value and book value of the shares were the same at that time. During the year, Reed’s Restaurant Supplies earned net income of $20 million and distributed cash dividends of $1.10 per share. At the end of the year, the fair value of the shares is $59 million. Required: Prepare the appropriate journal entries from the purchase through the end of the year.
