Topic06 Questions - AF3110 Intermediate Accounting 1...

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1 AF3110 Intermediate Accounting 1 2009/10 Semester 2 Topic 6 Question 1 The following information relates to the debt securities investments of the Yellowjackets Company. 1. On 1 February, the company purchased 12% bonds of Vanessa Williams Co. having a par value of $500,000 at 100 plus accrued interest. Interest is payable 1 April and 1 October. 2. On 1 April, semiannual interest is received. 3. On 1 July, 9% bonds of Chieftains, Inc. were purchased. The bonds with a par value of $200,000 were purchased at 100 plus accrued interest. Interest dates are 1 June and 1 December. 4. On 1 September, bonds with a par value of $100,000, purchased on 1 February, are sold at 99 plus accrued interest. 5. On 1 October, semiannual interest is received. 6. On 1 December, semiannual interest is received. 7. On 31 December, the fair value of the bonds purchased 1 February and 1 July are 95 and 93, respectively. Required: (a) Prepare any journal entries you consider necessary, including year-end entries (31 st December), assuming these are available-for-sale financial assets. (b) If Yellowjackets classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a). Question 2 Scott Ltd. invested its excess cash in available-for-sale financial assets during 2005. As of 31 st December, 2005, the portfolio of available-for-sale financial assets consisted of the following ordinary shares. Security Quantity Cost Fair Value Keesha Jones, Inc. 1,000 shares $15,000 $21,000 Eola Corp. 2,000 shares 50,000 42,000 Yevette Aircraft 2,000 shares 72,000 60,000 Totals $137,000 $123,000
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2 Required: (a) What should be reported on Scott ’s 31 st December, 2005, balance sheet relative to these financial assets? What should be reported on Scott ’s 2005 income statement? On 31 st December, 2006, Scott ’s portfolio of available-for-sale financial assets consisted of the following ordinary shares. Security Quantity Cost Fair Value Keesha Jones, Inc. 1,000 shares $15,000 $20,000 Keesha Jones, Inc. 2,000 shares 38,000 40,000 King Company 1,000 shares 16,000 12,000 Yevette Aircraft 2,000 shares 72,000 22,000 Totals $141,000 $94,000 During the year 2006, Scott Corp. sold 2,000 shares of Eola Corp. for $38,200 and purchased 2,000 more shares of Keesha Jones, Inc. and
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Topic06 Questions - AF3110 Intermediate Accounting 1...

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