ACC 557 Week 8 Homework Problems Strayer

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Chapter 12

Exercise 12-7

On January 1, Vince Corporation purchased a25% equity in Morelli Corporation for $180,000. At December 31, Morelli declared and paid a $60,000cash dividend and reported net income of $200,000.a) Journalize the transactions.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)b) Determine the amount to be reported as an investment in Morelli stock at December 31.

Exercise 12-8

Your answer is correct.

Presented below are two independent situations.1.Chicory Cosmetics acquired15% of the200,000shares of common stock of Racine Fashion at a total cost of $13per share on March 18, 2014. On June 30, Racine declared and paid a $60,000dividend. On December 31, Racine reported net income of $122,000for the year. At December 31, the market price of Racine Fashion was $15per share. The stock is classified as non-trading.

2.Frank, Inc., obtained significant influence over Nowak Corporation by buying30% of Nowaks30,000outstanding shares of common stock at a total cost of $9per share on January 1, 2014. On June 15, Nowak declared and paid a cash dividend of $30,000. On December 31, Nowak reported a net income of $80,000for the year.

Prepare all the necessary journal entries for 2014 for (a) Chicory Cosmetics and (b) Frank, Inc.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 12-12

Zippydah Company has the following data at December 31, 2014.SecuritiesCostFair Value

Trading$120,000$124,000

Non-trading100,00094,000

The non-trading securities are held as a long-term investment.

(a)Prepare the adjusting entries to report 1. Trading securities at fair value and 2. Non-trading securities at fair value.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(b)Indicate the statement presentation of each class of securities.

Problem 12-2A

In January 2014, the management of Stefan Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred.Feb. 1Purchased600shares of Superior common stock for $31,800, plus brokerage fees of $600.

Mar. 1Purchased800shares of Pawlik common stock for $20,000, plus brokerage fees of $400.

Apr. 1Purchased50$1,000,7% Venice bonds for $50,000, plus $1,000brokerage fees. Interest is payable semiannually on April 1 and October 1.

July 1Received a cash dividend of $0.60per share on the Superior common stock.

Aug. 1Sold200shares of Superior common stock at $58per share less brokerage fees of $200.

Sept. 1Received a $1per share cash dividend on the Pawlik common stock.

Oct. 1Received the semiannual interest on the Venice bonds.

Oct. 1Sold the Venice bonds for $50,000less $1,000brokerage fees.

At December 31, the fair value of the Superior common stock was $55per share. The fair value of the Pawlik common stock was $24per share.

a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)(Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

b) Prepare the adjusting entry at December 31, 2014, to report the investment securities at fair value. All securities are considered to be trading securities.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

c)Show the balance sheet presentation of investment securities at December 31, 2014.

d) Give the statement classification of each income statement account.