Securities transactions_ seven questions

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QS 15-1 Describing investments in securities L.O. C1, C2
Complete the following descriptions by selecting the appropriate option.

1. Accrual of interest on bonds held as long-term investments requires a credit to .
2.
The controlling investor (more than 50% ownership) is called the , and the investee company is called the .
3. Trading securities are classified as assets.
4. Equity securities giving an investor significant influence are accounted for using the .
5. Available-for-sale debt securities are reported on the balance sheet at .

QS 15-2 Identifying long-term investments L.O. C1
Which of the following statements are true of long-term investments? (Select True if the statement is true or False if the statement is not true.)


a. They can include investments in trading securities.
b. They are always easily sold and therefore qualify as being marketable.
c. They can include debt and equity securities available-for-sale.
d. They are held as an investment of cash available for current operations.
e. They can include debt securities held-to-maturity.
f. They can include bonds and stocks not intended to serve as a ready source of cash.
g. They can include funds earmarked for a special purpose, such as bond sinking funds.

QS 15-3 Short-term equity investments L.O. P1
On April 18, Dice Co. made a short-term investment in 500 common shares of XLT Co. The purchase price is $45 per share and the broker’s fee is $150. The intent is to actively manage these shares for profit. On May 30, Dice Co. receives $1 per share from XLT in dividends.

Prepare the April 18 and May 30 journal entries to record these transactions. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Apr. 18


May 30

QS 15-4 Available-for-sale securities L.O. P3
Fender Co. purchased short-term investments in available-for-sale securities at a cost of $100,000 on November 25, 2011. At December 31, 2011, these securities had a fair value of $94,000. This is the first and only time the company has purchased such securities.

1.
Prepare the December 31, 2011, year-end adjusting entry for the securities’ portfolio. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Dec.31, 2011


3.
Prepare the April 6, 2012, entry when Fender sells one-half of these securities for $52,000. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Apr. 6, 2012


QS 15-5 Available-for-sale securities L.O. P3
May 7
Purchases 100 shares of Lov stock as a short-term investment in available-for-sale securities at a cost of $25 per share plus $200 in broker fees.
June 6
Sells 100 shares of its investment in Lov stock at $28 per share. The broker’s commission on this sale is $75.

Prepare Hoffman Company’s journal entries to reflect the above transactions for the current year. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
May 7


June 6


QS 15-6 Available-for-sale securities L.O. P3
Galaxy Company completes the following transactions during the current year.

May 9 
Purchases 400 shares of X&O stock as a short-term investment in available-for-sale securities at a cost of $50 per share plus $400 in broker fees.
June 2 
Sells 200 shares of its investment in X&O stock at $56 per share. The broker’s commission on this sale is $180.
Dec. 31 The closing market price (fair value) of the X&O stock is $46 per share.

Prepare the May 9 and June 2 journal entries and the December 31 adjusting entry. This is the first and only time the company purchased such securities. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
May 9 


June 2 



Dec. 31 

QS 15-8 Equity method transactions L.O. P4
On May 20, 2011, Alexis Co. paid $750,000 to acquire 40% of TKR Corp.’s outstanding stock. Also assume that TKR Corp. paid a $125,000 dividend on November 1, 2011, and reported a net income of $550,000 for 2011.

(a) Prepare the entries to record the receipt of the dividend. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Nov. 1


(b)
Prepare the entries to record the December 31, 2011, year-end adjustment required for the investment account. (Omit the "$" sign in your response.)

Date General Journal Debit Credit
Dec. 31

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