Q.10-25CP_1
Question
Question: P10-25 Accounting for debt and equity investments
This problem continues the Canyon Canoe Company situation from Chapter 9. Amber and Zack Wilson are pleased with the growth of their business and have decided to invest its temporary excess cash in a brokerage account. The company had the following securities transactions in 2019.
Jul. 1 Purchased 8,000 shares in Adobe Outdoor Adventure Company for \(3 per share. Canyon Canoe does not have significant influence over Adobe.
7 Purchased 35% of the stock of Bison Backpacks consisting of 43,750 shares of stock (out of a total of 125,000 shares) for \)5 per share. Canyon Canoe does have significant influence over Bison.
10 Purchased a bond from Camelot Canoes with a face value of \(80,000. Canyon Canoe intends to hold the bond to maturity. The bond pays interest semiannually on June 30 and December 31.
Sep. 30 Received dividends of \)0.15 per share from Adobe.
Nov. 1 Received dividends of \(0.30 per share from Bison.
Dec. 31 Received an interest payment of \)3,200 from Camelot Canoes.
31 Bison Backpacks reported net income of \(30,000 for the year.
31 Adjusted the Adobe stock for a market value of \)2.98 per share.
Requirements
1. Journalize the transactions including any entries, if required, at December 31, 2019.
Step-by-Step Solution
VerifiedAnswer
Both sides of the journal totals $350,935.
The interest rate that will be charged on the borrowed amount for every 6 months is known as the semi-annual interest rate.
Date | Accounts and Explanation | Debit $ | Credit $ |
1 July 2019 | Equity investment – Adobe outdoor | $24,000 |
|
| Cash |
| $24,000 |
|
|
|
|
7 July 2019 | Equity investment - Bison | $218,750 |
|
| Cash |
| $218,750 |
|
|
|
|
10 July 2019 | Held to maturity – debt investment | $80,000 |
|
| Cash |
| $80,000 |
|
|
|
|
30 Sep 2019 | Cash | $1,200 |
|
| Dividend revenue |
| $1,200 |
|
|
|
|
1 Nov 2019 | Cash | $13,125 |
|
| Equity investment |
| $13,125 |
|
|
|
|
31 Dec 2019 | Cash | $3,200 |
|
| Interest revenue |
| $3,200 |
|
|
|
|
31 Dec 2019 | Equity investment – Bison | $10,500 |
|
| Revenue from investment |
| $10,500 |
|
|
|
|
31 Dec 2019 | Unrealized holding loss | 160 |
|
| Fair value adjustment |
| 160 |
|
| $350,935 | $350,935 |