Individual Review: Investments Parnell Industries buys securities to be available for sale when circumstances warrant, not to profit from short-term differenc
and not necessarily to hold debt securities to maturity. The following selected transactions relate to investment activities of P
Industries whose fiscal year ends on December 31. No investments were held by Parnell at the beginning of the year.
2018
March 1 Purchased 2 million Platinum Gems, Inc. common shares for $124 million, plus $2 million in brokerage fees and
commissions.
April 13 Purchased $200 million of 10% bonds at face value from Oracle Wholesale Corporation.
July 20 Received cash dividends of $3 million on the investment in Platinum Gems, Inc. common shares.
October 13 Received semiannual interest of $10 million on the investment in Oracle bonds.
October 14 Sold the Oracle bonds for $205 million.
November 1 Purchased 500,000 SPI International preferred shares for $40 million, plus $1 million in brokerage fees and
commissions.
December 31 Recorded the necessary adjusting entry(s) relating to the investments. The market prices of the investments
per share for Platinum Gems, Inc. and $74 per share for SPI International preferred shares.
Required: 1. Prepare the appropriate journal entry for each transaction or event, applying ASC 825-10 recognition and measurement wh
effective for US GAAP public entities beginning in 2018.
2. Show the amounts that would be reported on the company’s 2018 income statement related to these investments. en circumstances warrant, not to profit from short-term differences in price
following selected transactions relate to investment activities of Parnell
estments were held by Parnell at the beginning of the year.
shares for $124 million, plus $2 million in brokerage fees and e from Oracle Wholesale Corporation.
stment in Platinum Gems, Inc. common shares.
on the investment in Oracle bonds. d shares for $40 million, plus $1 million in brokerage fees and ating to the investments. The market prices of the investments
International preferred shares. are $64 or event, applying ASC 825-10 recognition and measurement which is y’s 2018 income statement related to these investments. Individual Homework #4: Investments
On January 4, 2018, RTN Industries paid $648,000 for 20,000 shares of Austin Cattle
Company common stock. The investment represents a 30% interest in the net assets of
Austin and gave RTN the ability to exercise significant influence over Austin’s operations.
RTN received dividends of $3.00 per share on December 6, 2018, and Austin reported net
income of $320,000 for the year ended December 31, 2018. The market value of Austin’s
common stock at December 31, 2018, was $32 per share. The book value of Austin’s net
assets was $1,600,000 and:
a. The fair market value of Austin’s depreciable assets, with an average remaining useful
life of 8 years, exceeded their book value by $160,000.
b. The remainder of the excess of the cost of the investment over the book value of net
assets purchased was attributable to goodwill.
Required:
1. Prepare all appropriate journal entries related to the investment during 2008, assuming
RTN accounts for this investment by the equity method. What is the carrying amount of
this investment on RTN’s balance sheet as of December 31, 2008? What’s the effect of this
investment on RTN’s 2008 income before taxes?
2. Prepare the journal entries required by RTN, assuming that RTN elected the fair value
option under SFAS 159. What is the carrying amount of this investment on RTN’s balance
sheet as of December 31, 2018? What’s the effect of this investment on RTN’s 2018
income before taxes? Individual Homework #4: Investments
Bridgeport Company buys and sells securities expecting to make money on short-term price
movements. The company’s fiscal year ends on December 31. The following transactions
relating to Bridgeport’s trading accounts occurred during December 2018 and the first week of
2019.
2018
December 3: Purchased 100,000 shares of VMWare Corporation’s common stock at
$80
per share.
December 7: Purchased 150,000 shares of Intel Corporation’s common stock at $20 per
share.
December 24:
Received cash dividends of $0.10 per share from the Intel common stock.
December 31:
Recorded any necessary adjusting entries relating to the VMWare and
Intel shares. The market prices for VMWare and Intel were $77 per share
and $23.50 per
share respectively.
2019
January 2:
January 4: Sold the 100,000 shares of VMWare common stock at $75 per share.
Sold the 150,000 shares of Intel common stock at $22 per share. Required:
1. Prepare the appropriate journal entry for each transaction.
2. Indicate any amounts Bridgeport Company would report in its 2018 balance sheet and
income statement as a result of these investments.