ACC 202 Intermediate Accounting II - ACC 202 Intermediate...

ACC 202 Intermediate Accounting II
Name__________________________________
You must show computations to receive credit for your answers.
1. On Jan 1, 2011 XYZ Co purchased 12,000 shares of ABC Co for $15 a share. ABC
has 100,000 shares outstanding. ABC reported net income of $60,000 and paid
dividends of $5,000. On Dec 31, 2011 ABC had a market value of $18 a share. XYZ
accounts for this investment as available for sale.
Make the appropriate journal entries for 2011.
A) Purchase
Cost of purchasing shares =$15*12,000=$180,000
Journal entry
Debit Credit
Common stock $180,000
Cash $180,000
To record the purchase of 12,000 shares from ABC Company at $15 per share
B) Receipt of dividends
Debit Credit
Dividend payable $5,000
Retained earnings $5,000
To record the issuance of dividends worth $5,000
C) Yearend adjustments
Total cash at the yearend = 112,000*18=$2,016,000
Debit Credit
Cash $2,016,000
Common stock $2,016,000
To record the adjustment of shares from 100,000 at the beginning of the year to 112,000
2. Use the same information as #1. On Dec 31, 2011 the value of ABC stock was
$17.50 per share.
Make the appropriate adjusting entry as of December 31, 2011.
Total cash at the yearend = 112,000*17.5=$
Debit Credit
Cash $1,960,000
Common stock $1,960,000
To record the adjustment of shares from 100,000 at the beginning of the year to 112,000

3.
On Jan 1, 2011 XYZ purchased 11,000 shares of ABC Co for $20 a share. ABC had
50,000 shares outstanding. XYZ now accounts for its investment in ABC using the
equity method. ABC reported net income of $120,000 and paid dividends of 30,000.
Make all of the necessary journal entries for 2011.
a) Initial purchase
Cost of purchasing the shares= 11,000*$20=$220,000
Debit Credit
Common stock $220,000
Cash $220,000
To record the purchase of 11,000 shares from ABC Company at $20 per share
b) Receipt of dividends
Debit Credit
Dividend payable $30,000
Retained earnings $30,000
To record the issuance of dividends worth $30,000
c) Reporting net income
Debit Credit
Dividend payable $120,000
Retained earnings $120,000
To record a net income of $120,000 earned by ABC Co
4. XYZ invested in the bonds of ABC Co. The bonds had a maturity of
$70,000 due in 10 years, paying annual interest of 6%, semiannually on June 30
and Dec 31. The market rate was 8%. XYZ paid $60,487.
Interest
Received
Interest
Revenue Amortization
Carrying
Value $60,487
1 2100 2419.48 319.48 60806.48
2 2100 2432.26 332.26 61138.74
3 2100 2445.55 345.55 61484.29
4 2100 2459.37 359.37 61843.66
Fill in the above chart to account for the held to maturity investment and
prepare journal entries for the amortization and receipt of interest:
June 30, Year 1

Debit Credit
Interest expense $4,200
Loan account $651.74
Cash $4,851.74
To record loan repayment of $651.74 cash payment of $4,851.74
Dec 31, Year 2
Debit Credit
Interest expense $4,200
Loan account $704.92
Cash $4,904.92
To record loan repayment of $704.92 cash payment of $4,904.92
5. The following information pertains to Crystal Inc.’s portfolio of investments for