WEEK 2 EXERCISES ASSIGNMENT

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.

Jan. 10		Issued 80,000 shares for cash at $6 per share.
Mar. 1		Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.
July 1		Issued 30,000 shares for cash at $8 per share.
Sept. 1		Issued 60,000 shares for cash at $10 per share.

(a)		Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.
(b)		Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3 per share.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

(a)

Jan. 10

:

$ [removed]

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.

On April 1, 2015, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a)		Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued.
(b)		Prepare the entry to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. $3,500.)

No.	Account Titles and Explanation	Debit	Credit
(a)	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
(b)	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

(a) What entry should be made at the time of the issuance of the bonds and warrants? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
[removed]	[removed]	[removed]
[removed]	[removed]	[removed]
[removed]	[removed]	[removed]
[removed]	[removed]	[removed]

(b) Prepare the entry if the warrants were nondetachable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
[removed]	[removed]	[removed]
[removed]	[removed]	[removed]
[removed]	[removed]	[removed]

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

(a)		Prepare the journal entry at the date of the bond purchase.
(b)		Prepare the journal entry to record the interest received for 2013.
(c)		Prepare the journal entry to record the interest received for 2014.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	Jan. 1, 2013	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
(b)	Dec. 31, 2013	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
(c)	Dec. 31, 2014	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]

On January 1, 2013, Hi and Lois Company purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10.00% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2013		$320,500		2016		$310,000
2014		$309,000		2017		$300,000
2015		$308,000

(a)		Prepare the journal entry at the date of the bond purchase.
(b)		Prepare the journal entries to record the interest received and recognition of fair value for 2013.
(c)		Prepare the journal entry to record the recognition of fair value for 2014.

(Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	Jan. 1, 2013	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
(b)	Dec. 31, 2013	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
		(To record interest received)
	Dec. 31, 2013	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]
(c)	Dec. 31, 2014	[removed]	[removed]	[removed]
		[removed]	[removed]	[removed]

On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.

December 31, 2013
Investments (Trading)		Cost		Fair Value		Unrealized Gain (Loss)
Clemson Corp. stock		$20,000		$19,000		$(1,000	)
Colorado Co. stock		10,000		9,000		(1,000	)
Buffaloes Co. stock		20,000		20,600		600
Total of portfolio		$50,000		$48,600		(1,400	)
Previous fair value adjustment balance						0
Fair value adjustment—Cr.						$(1,400	)

During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500.

(a)		Prepare the adjusting journal entry needed on December 31, 2013.
(b)		Prepare the journal entry to record the sale of the Colorado Company stock during 2014.
(c)		Prepare the adjusting journal entry needed on December 31, 2014.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
(b)	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
(c)	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year.

Use the information in the following T-account for the investment in Sub to answer the following questions.

Investment in Sub Co.
1,000,000
110,000
	44,000

(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?

Net income

$ [removed]

(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?

Dividends

$ [removed]

(c) What was Sub Co.’s total net income for the year?

Total net income

$ [removed]

(d) What was Sub Co.’s total dividends for the year?

Total Dividends

$ [removed]

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014.

(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2013	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
June 30, 2014	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
Dec. 31, 2014	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	(To record dividend.)
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	(To record fair value.)

(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2013	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
June 30, 2014	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
Dec. 31, 2014	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	(To record dividend.)
	[removed]	[removed]	[removed]
	[removed]	[removed]	[removed]
	(To record revenue.)

(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?

		Fair Value Method		Equity Method
Investment amount		$ [removed]		$ [removed]
Dividend revenue		[removed]		[removed]
Investment income (income statement)		[removed]		[removed]