Pagnucci Carecenters Inc/SYAL COMPANY

Problem 1: Points = 10: Pagnucci Carecenters Inc. provides financing and capital to the
health-care industry, with a particular focus on nursing homes for the elderly. The
following selected transactions relate to bonds acquired as an investment by Pagnucci,
whose fiscal year ends on December 31.
2010
Jan 1--Purchased at face value $2,000,000 of Franco Nursing Centers, Inc., 10-year, 8%
bonds dated January 1, 2012, directly from Franco.
July 1--Received the semiannual interest on the Franco bonds. Dec. 31 Accrual of interest
at year-end on the Franco bonds.
(Assume that all intervening transactions and adjustments have been properly recorded
and that the number of bonds owned has not changed from December 31, 2012, to
December 31, 2014.)
Jan 1--Received the semiannual interest on the Franco bonds.Sold $1,000,000
Jan 1--Franco bonds at 106. The broker deducted $6,000 for commissions and fees on the
sale.
July 1--Received the semiannual interest on the Franco bonds. Dec. 31 Accrual of interest
at year-end on the Franco bonds.
Instructions:
a. Journalize the listed transactions for the years 2012 and 2015.
b. Assume that the fair value of the bonds at December 31, 2012, was $2,200,000. These
bonds are classified as available-for-sale securities. Prepare the adjusting entry to record
these bonds at fair value.
c. Based on your analysis in part (b), show the balance sheet presentation of the bonds
and interest receivable at December 31, 2012. Assume the investments are considered
long-term. Indicate where any unrealized gain or loss is reported in the financial
statements.
Problem 2: Points = 10: Here are comparative balance sheets for Syal Company.
SYAL COMPANY
Comparative Balance Sheets December 31 2012
2012
2011
Assets

73000

22000

CashAccounts receivable

85000

76000

Inventory
170000
Land
75000
Equipment
260000
Accumulated depreciation—equipment

189000
100000
200000
(66000)
(32000)

Total

597000

555000

Accounts payable
Bonds payable

39000
150000

47000
200000

Common stock ($1 par) Retained earnings

216000

174000

Total

597000

555000

Liabilities and Stockholders’ Equity

Additional information:
1. Net income for 2012 was $103,000.
2. Cash dividends of $45,000 were declared and paid.
3. Bonds payable amounting to $50,000 were redeemed for cash $50,000.
4. Common stock was issued for $42,000 cash.
5. No equipment was sold during 2012, but land was sold at cost.
Instructions:Prepare a statement of cash flows for 2012 using the indirect method.