Buy Official© Solutions Manual for Corporate Financial Accounting,Warren,16e

APPENDIX B
SELECTED TOPICS

TOPIC 1: INVESTMENTS

ASSIGNMENTS
B1–1
Held-to-maturity, trading, and available-for-sale securities


B1–2
The primary objective of investing in held-to-maturity securities is to earn
interest revenue and collect the face value of the security at its maturity date.


B1–3
Cost method


B1–4
Held-to-maturity securities that will mature within one year are reported as
current assets. Securities maturing beyond one year are reported as long-term
assets.


B1–5
a. Investments—Vasquez City Bonds 420,000
Interest Receivable 6,300
Cash 426,300

b. Cash ($420,000 × 6% × 1/2) 12,600
Interest Receivable 6,300
Interest Revenue 6,300

c. Cash 208,950*
Loss on Sale of Investments 2,100
Interest Revenue 1,050
Investments—Vasquez City Bonds 210,000
* Sales proceeds ($210,000 × 99%)……………………………………
$207,900
Accrued interest………………………………………………………… 1,050
Total proceeds from sale……………………………………………… $208,950

d. Cash 210,000
Investments—Vasquez City Bonds 210,000



B1-1
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, APPENDIX B Topic 1: Investments


B1–6
a. Investments—Hotline Inc. Bonds 180,000
Interest Receivable 1,500
Cash 181,500

b. Cash ($180,000 × 5% × 1/2) 4,500
Interest Receivable 1,500
Interest Revenue 3,000

c. Cash 92,550 *
Interest Revenue 750
Gain on Sale of Investments 1,800
Investments—Hotline Inc. Bonds 90,000
* Sales proceeds ($90,000 × 102%)……………………………… $91,800
Accrued interest…………………………………………………… 750
Total proceeds from sale………………………………………… $92,550

d. Cash 90,000
Investments—Hotline Inc. Bonds 90,000


B1–7
a. May 1 Investments—Marimar Co. Bonds 150,000
Cash 150,000

b. Nov. 1 Cash 4,500
Interest Revenue 4,500
$150,000 × 6% × 6/12.

c. Nov. 1 Cash ($55,000 × 98%) 53,900
Loss on Sale of Investments 1,100
Investments—Marimar Co. Bonds 55,000

d. Dec. 31 Interest Receivable 950
Interest Revenue 950
Accrued interest [($150,000 –
$55,000) × 6% × 2/12].




B1-2
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, APPENDIX B Topic 1: Investments


B1–8
a. 20Y1
Oct. 1 Investments—Effenstein Corp. Bonds 240,000
Cash 240,000

b. 20Y1
Dec. 31 Interest Receivable 4,800
Interest Revenue 4,800
Accrued interest ($240,000 × 8%
× 3/12).

c. 20Y2
Apr. 1 Cash 9,600
Interest Receivable 4,800
Interest Revenue ($240,000 × 8% × 3/12) 4,800

d. 20Y2
Apr. 1 Cash ($90,000 × 102%) 91,800
Gain on Sale of Investments 1,800
Investments—Effenstein Corp. Bonds 90,000

e. 20Y8
Oct. 1 Cash 150,000
Investments—Effenstein Corp. Bonds 150,000




B1-3
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, APPENDIX B Topic 1: Investments

B1–9

a. Year 1
May 11 Investments—Lumpkin County Bonds 360,000
Interest Receivable 2,400 *
Cash 362,400
* $360,000 × 6% × 40 ÷ 360


b. Oct. 1 Cash ($360,000 × 6% × 1/2) 10,800
Interest Receivable 2,400
Interest Revenue 8,400

c. Oct. 31 Cash 88,650*
Loss on Sale of Investments 1,800
Interest Revenue 450
Investments—Lumpkin County Bonds 90,000

* Bond sale ($90,000 × 98%)…………………………… $88,200
Accrued interest ($90,000 × 6% × 30 ÷ 360)……… 450
Total proceeds………………………………………… $88,650


d. Dec. 31 Interest Receivable 4,095
Interest Revenue 4,095
$270,000 × 6% × 91 ÷ 360.

e. Year 20
Apr. 1 Cash 270,000
Investments—Lumpkin County Bonds 270,000




B1-4
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