Exam 11: Financial Instruments: Investments in Bonds and Equity Securities

On January 1^st, 2011, ABC Inc. purchased a $1,000 bond which pays interest semi-annually on June 30^th and December 31^st each year at the stated rate of 6% per annum. The market rate was 8% on January 1^st, 2011. The bond matures on December 31^st, 2015. There is no active market for the bond, so ABC will account or it using the amortized cost method. Required: a) How much was the bond purchased for (ignore brokerage fees)? b) Provide all required journal entries for 2011.

On March 1, 2014, ABC paid $10,000 for 500 shares of XTC and 600 shares of YTC. The XTC shares were quoted at $12 per share on March 1, 2014. There was no quoted selling price for the YTC shares; however, one year earlier it was selling for $8 per share. Calculate the debits to the investment accounts for each share.

The data below pertains to the values of various FVTPL investments held by a client company: Stock Shares Cost Market Value (1281/2011) X 500 \ 30=\ 15,000 \ 24=\ 12,000 Y 1,000 20=20,000 30=30,000 Z 750 24=18,000 30=22,500 The company's entire FVTPL portfolio should be valued at which amount on December 31^st, 2011?

The book value of a bond purchased at a premium or discount and classified, as an investment in marketable securities must be adjusted each period for amortization of the premium or discount.

ABC Inc purchased shares of DEF Inc as follows: June 30^th, 2013 4,000 shares @ $3 per share $12,000 June 30^th, 2014 3,000 shares @ $4 per share $12,000 June 30^th, 2015 3,000 shares @ $6 per share $18,000 The shares are considered to be passive investments. ABC Inc. has a December 31^st, year-end. The market value of the DEF shares at each year-end was as follows: December 31^st, 2013 $3.50 per share December 31^st, 2014 $5.00 per share December 31^st, 2015 $5.50 per share On July 1^st, 2015, ABC sold half its shares in DEF Inc. for $6.50 per share. -The balance in the OCI account related to the Investment in DEF account immediately following the sale of the shares was:

A bond must be held until maturity in order to be classified as an amortized cost investment.

Masters Inc. acquired 30% of Continental Corp.'s voting shares on January 1, 2001 for $100,000. During 2001, Continental earned $40,000 and paid dividends of $25,000. Master's 30% interest in Continental gives Masters the ability to exercise significant influence over Continental's operating and financial policies. During 2002, Continental earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October 1. On July 1, 2002, Masters sold half of its shares in Continental for $66,000 cash. Calculate the carrying amount of this investment in Mater's December 31, 2001 balance sheet.

For each situation, give the appropriate journal entry(s). Assume the cost method is used. (a) On January 1, 2013, Investor A purchased (for cash) a long-term investment, 1,000 shares (1 percent) of 6 percent, cumulative, preferred shares of Corporation B at $48 per share, when one year of dividends was in arrears. (b) On March 1, 2013, Investor A received a 100 percent stock split on the B stock. (c) On December 31, 2014, Investor A received notice that the board of directors of Corporation B had declared cash dividends on the preferred stock sufficient to cover the arrears and the current year.