Bonds and Share investments

Dot Image

Q-1 AB Company purchased as a long-term investment $500,000 of BC Corporation 10-year, 9% bonds. Present entries to record the following selected transactions:

A) Purchased bonds for $475,000.

Sold half the bonds at 98 plus accrued interest of $4,000. The broker deducted $200 for brokerage fees and taxes, remitting the balance. The bonds were carried at $489,000 at the time of the sale.

Q-2 Present entries to record the following selected transactions of MT Co.

A) Purchased 600 shares of the 100,000 shares outstanding $10 par common shares of Dank Corporation for $5,100.

B) Purchased 3,500 shares of the 10,000 shares no par common shares of RM Co. for $45,700. The investment was accounted for by the equity method.

C)Received a cash dividend of $1 per share on the Dank Corporation stock acquired in (A)

(D) Received a cash dividend of $2 per share on the RM Co. stock acquired in (B).

(E) Sold 100 shares of the Dank Corporation shares acquired in (A) for $2,100.

(F) Dank Corporation reported net income of $30,000 and RM Company’s reported net income was $50,000.

Q3-On May 1, 2011, Stan Company purchased $50,000 of HR Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stan received its first semiannual interest. On February 1, 2012, Stan sold $40,000 of the bonds at 103 plus accrued interest.

The journal entry Stan will record on June 30, 2011, will include:

A) a credit to Interest Receivable for $1,000.

B) a credit to Interest Revenue for $2,000.

C) a debit to Cash for $2,000.

D) a debit to Cash for $3,000.

Purchase this Tutorial @ 10.00