Accounting homework

1.) Motown Corporation has the following information:

Par value of bonds $ 400,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 369,112

Purchased on 1/1/X2

Mature on 1/1/X7

Interest paid semi-annually on July 1

AND January 1

Bonds were purchased with the ability and intent to hold to maturity.

The entry to record the purchase of the bonds is as follows:

A. Debit the Held to Maturity Securities account and credit cash for $185,280

B. Debit the Held to Maturity Securities account and credit cash for $170,973

C. Debit the Held to Maturity Securities account and credit cash for $369,112

D. Debit the Held to Maturity Securities account and credit cash for $400,000

E. Debit the Held to Maturity Securities account and credit cash for $154,200Page 3

2.) Motown Corporation has the following information:

Par value of bonds $ 300,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 276,834

Purchased on 1/1/X2

Mature on 1/1/X7

Interest paid semi-annually on July 1

AND January 1

Carrying value at 12/31/X2 $ 280,610

Fair value at 12/31/X2 $ 285,000

The bonds are available for sale.

The journal entry required on 12/31/X2 is as follows:

A. Debit Securities Fair Value Adjustment – Available for Sale and credit Gain on Available for Sale Bonds for $15,000.

B. Debit Securities Fair Value Adjustment – Available for Sale and credit Gain on Available for Sale Bonds for $4,390

C. Debit Securities Fair Value Adjustment – Available for Sale and credit Unrealized Holding Gain on Bonds for $4,390

D. Debit Securities Fair Value Adjustment – Available for Sale and credit Unrealized Holding Gain on Bonds for $8,166.

E. Debit Available For Sale Securities and credit Unrealized Holding Gain on Bonds for $8,166.Page 4

Use the following information for # 3 - 6:

Cost Fair Value

$400,000 of 10% bonds $ 356,000 $ 406,000

$100,000 of 8% bonds $ 100,000 $ 99,500

$300,000 of 12% bonds $ 302,000 $ 282,000

Previous Sec. FV Adj. $ - $ -

Totals $ 758,000 $ 787,500

3.) The total amount to go through current year income with regard to these securities is:

A. None the amount of gain/(loss) is a separate component of stockholder’s equity

B. Gain of $50,000

C. Loss of $20,500

D. Gain of $29,500

E. Loss of $12,500

4.) The entry to record the above information is as follow:

A. Debit Unrealized Holding Gain or Loss on Bonds account and credit Securities Fair Value Adjustment – Trading Securities.

B. Debit Securities Fair Value Adjustment – Trading Securities account and credit Unrealized Holding Gain or Loss on Bonds.

C. Debit Unrealized Holding Gain or Loss on Bonds account and credit Cash.

D. Debit Securities Fair Value Adjustment – Trading Securities account and credit Cash.

Motown Corporation holds the following trading securities on 12/31/X2. Assume that there was no previous adjustment to the

Securities Fair Value account:

InvestmentPage 5

5.) The impact of the above entry on the asset side of the balance sheet is as follows:

A. No impact

B. Increase

C. Decrease

6.) The unrealized gain or loss on the $400,000 10% bonds is:

A. Loss of $44,000

B. Gain of $6,000

C. Gain of $50,000

D. Loss of $50,000

E. Gain of $44,000

Use the following additional information for #7 - 9:

Fair Value Fair Value

Cost at 12/31/X2 at 12/31/X3

$400,000 of 10% bonds $ 356,000 $ 310,000 $ 342,000

$100,000 of 8% bonds $ 100,000 $ 100,000 $ 109,000

$300,000 of 12% bonds $ 302,000 $ 220,000 $ 313,000

Previous Sec. FV Adj. $ - $ -

Totals $ 758,000 $ 630,000

7.) The current year unrealized gain or loss from the $300,000 12% bonds is:

A. Gain of $ 13,000

B. Loss of $ 46,000

C. Gain of $ 46,000

D. Gain of $ 93,000

E. Loss of $ 13,000

Motown Corporation holds the following trading securities on 12/31/X3. Assume that all previous adjustments to the Securities Fair

Value account were made as necessary:

InvestmentPage 6

8.) The net gain or loss on the change in value of all securities from 12/31/X2 to 12/31/X3 is:

A. Loss of $ 6,000

B. Gain of $ 93,000

C. Gain of $ 9,000

D. Gain of $ 134,000

E. Loss of $ 128,000

9.) The total amount to go through current year income with regard to these securities is as follows:

A. Loss of $ 128,000

B. Gain of $ 6,000

C. Gain of $ 128,000

D. Gain of $ 134,000

E. Loss of $ 6,000Page 7

Use the following information for #10 – 14:

The following information is available for the Motown Corporation:

Motown Purchases 25% of the total shares of Max Corp

Purchased on 1/1/X5

# shares Max Corp outstanding 80,000

Par value per share $ 10

Fair market value per share $ 10

The book value of Max Corp. $ 800,000

Motown has significant influence of the Max Corp.

10.) The original entry for the acquisition of the stock on 1/1/X5 is as follows:

A. No entry required

B. Debit Cash and credit Investment in Max Corporation (income statement account) for $200,000

C. Debit Investment in Max Corporation (income statement account) and credit Cash for $200,000

D. Debit Investment in Max Corporation (balance sheet account) and credit Cash for $25,000

E. Debit Investment in Max Corporation (balance sheet account) and credit Cash for $200,000

11.) The entry required on Motown’s books at 12/31/X5 is as follows:

Net loss of is reported by Max Corp. for year end 12/31/X5 $ (40,000)

A. Debit Cash and credit Investment in Max Corporation (income statement account) for $10,000

B.

C.

D.

E. No entry required

Debit Loss from Investment in Max Corporation (income statement account) and credit Investment in Max Corporation (balance sheet

account) for $40,000

Debit Loss from Investment in Max Corporation (income statement account) and credit Investment in Max Corporation (balance sheet

account) for $10,000

Debit Loss from Investment in Max Corporation (balance sheet account) and credit Investment in Max Corporation (income statement

account) for $10,000Page 8

12.) The entry required on Motown’s books at 6/1/X6 is as follows:

Cash dividend paid by Max Corp on 6/1/X6 $ 200,000

A. No entry required.

B. Debit Cash and credit Investment In Max Corporation (balance sheet account) for $50,000

C. Debit Cash and credit Investment in Max Corporation (balance sheet account) for $200,000

D. Debit Investment in Max Corporation (income statement account) and credit Cash for $50,000

E. Debit Retained Earnings and credit Investment in Max Corporation (balance sheet account) for $50,000

13.) The entry required on Motown’s books at 12/31/X6 affects the stockholder’s equity section of the balance sheet as follows:

Net income of is reported by Max Corp. for year end 12/31/X6 $ 68,000

A. No impact on stockholder's equity

B. Increase of $ 68,000

C. Decrease of $ 68,000

D. Increase of $ 17,000

E. Decrease of $ 17,000Page 9

14.) On 12/31/X6 the fair value of Max Corporation’s stock is $15 per share. The entry required on Motown’s books is as follows:

A.

B.

C.

D.

E. No entry required.

Use the following information for #15 - 19:

Motown Corporation has the following information:

Par value of bonds $ 400,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 369,112

Purchased on 1/1/X2

Mature on 1/1/X7

Interest paid semi-annually on July 1

AND January 1

The bonds are purchased with the intent and ability to hold to maturity

15.) What is the bond discount amortization amount for the 7/1/X2 payment?

A. $ 2,578

B. $ 18,456

C. $ 2,456

D. $ 371,568

Debit Investment in Max Corporation (balance sheet account) and credit Gain from Investment in Max Corporation (income statement

account) for $300,000

Debit Investment in Max Corporation (balance sheet account) and credit Gain from Investment in Max Corporation (stockholder’s equity

account) for $300,000

Debit investment in Max Corporation (balance sheet account) and credit Gain from Investment in Max Corporation (stockholder’s equity

account) for $100,000

Debit investment in Max Corporation (balance sheet account) and credit Gain from Investment in Max Corporation (income statement

account) for $100,000Page 10

16.) What is the carrying value of the bonds at 1/1/X2?

A. $ 379,425

B. $ 400,000

C. $ 369,112

D. $ 379,696

17.) What is the carrying value of the bonds at 12/31/X3?

A. $ 379,425

B. $ 369,112

C. $ 400,000

D. zero

E. $ 379,696

18.) The entry to record the interest payment on 7/1/X2 is as follows:

A. Debit Cash for $18,456, credit Held to Maturity Securities for $4,912 and credit Interest Revenue for $16,000

B. Debit Cash for $32,000, debit Held to Maturity Securities for $4,912 and credit Interest Revenue for $36,912

C. Debit Cash for $16,000, debit Held to Maturity Securities for $2,456 and credit Interest Revenue for $18,456Page 11

19.) The impact on total stockholder’s equity of the entry required on 7/1/X2 is:

A. No impact on stockholder's equity

B. Decrease of $ 16,000

C. Increase of $ 18,456

D. Decrease of $ 18,456

E. Increase of $ 2,456

20.) Motown Corporation has the following information:

Par value of bonds $ 200,000

Stated Interest rate 8%

Effective Interest rate 10%

Purchased for $ 184,556

Purchased on 1/1/X2

Sold on 7/1/X3

Sold for 97%

Interest paid semi-annually on July 1

AND January 1

The bonds are purchased with the intent and ability to hold to maturity

The impact on retained earnings for the entry required upon the sale of the bonds is:

A. No impact on retained earnings as amount of gain/(loss) is shown as a separate component of stockholder’s equity.

B. Increase of $ 5,573

C. Decrease of $ 5,573

D. Increase of $ 188,427

E. Decrease of $ 188,427