Chapter14InClassExercises

Chapter14InClassExercises - In‐Class Exercises Chapter 14...

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Unformatted text preview: In‐Class Exercises Chapter 14 Exercise #1 On April 1, 2009, Ajax Corporation purchased Universal Co. bonds with face value of $200,000 and a coupon rate of 8% per annum. The bonds were purchased to yield 10% interest per annum. Interest is payable semiannually on June 30 and December 31. The bonds mature on December 31, 2011. Required: 1) Assume the bonds will be held as Trading Securities: a) Prepare the journal entry to record the purchase of bonds on April 1, 2009 (including accrued interest through April 1, 2009 using the Asset Approach). b) Prepare the journal entries to record the semi‐annual interest payments on June 30, 2009 and December 31, 2011. 2) Assume the bonds will be held as Held‐to‐Maturity Securities: a) Prepare the journal entry to record the purchase of bonds on April 1, 2009 (including accrued interest through April 1, 2009 using the Revenue Approach). b) Prepare the journal entries to record the semi‐annual interest payments on June 30, 2009 and December 31, 2011. Exercise #2 On May 15, 2010, Ajax Company purchases shares of Universal Co. stock amounting to 40% of Universal’s outstanding shares. Ajax paid $2,500,000 for the shares. On the date of the purchase, Universal Co. balance sheet, they report common shares outstanding have a book value of $5,000,000. The difference between the book value and market value of Universal Co. shares can be attributed to an unrecorded patent worth $750,000 with a remaining useful life of 10 years and to their headquarters building which has a market value in excess of book value of $500,000. The building has a remaining useful life of 20 years. On December 31, 2010, Universal reported net income of $800,000 and declared cash dividends of $300,000. Required: Prepare the necessary journal entries for this investment by Ajax in 2010. ACCT 4050 Page 1 of 6 Chapter 14 ‐ In‐Class Exercises In‐Class Exercises Exercise #3 Chapter 14 At the end of 2010, Ajax Incorporated holds the following securities: Name Classification Cost or Amortized Cost Market Value Stock A Trading $ 23,000 $25,000 Stock B Trading 12,500 10,400 Stock C Available‐for‐Sale 26,000 25,000 Bond Y Available‐for‐Sale 43,500 46,300 Bond Z Held‐to‐Maturity 150,000 145,000 The Market Adjustment—Trading Securities account has a pre‐adjusted credit balance of $400. The Market Adjustment—AFS Securities account has a pre‐adjusted credit balance of $1,200. On February 1, 2011, Ajax sold all of its holdings of Stock A for the market price of $26,000. On March 15, 2011, Ajax decided to transfer Bond Z from Held‐to‐Maturity to AFS classification. At that time, the market value of the Bond Z investment was $143,000. On May 12, 2011, Ajax decided to transfer Stock C from AFS to Trading classification. At that time, the market value of the Stock C investment was $27,500. Required: Prepare journal entries to adjust the Trading and AFS security portfolios to fair value on December 31, 2010 Prepare the journal entry to record the sale of Stock A Prepare the journal entry to transfer Bond Z from Held‐to‐Maturity to AFS Prepare the journal entry to transfer Stock C from AFS to Trading ACCT 4050 Page 2 of 6 Chapter 14 ‐ In‐Class Exercises ...
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