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follows. On January 20, 2011, Wenger, Inc. sold security A for $15,300. The sale proceeds are net of brokerage fees. (a) Prepare the adjusting entry at December Equity Securities the Financial Accounting Standards Board issued accounting guidance to clarify accounting methods and procedures with respect to certain debt and all equity securities. An important part of the statement concerns the distinction between held-to-maturity, availablefor-sale, and trading securities. (a) Equity Securities Entries Capriati Corporation made the following cash purchases of securities during 2010, which is the first year in which Capriati invested in securities. 1. On January 15, purchased 9,000 shares of Gonzalez Company’s common stock at $33.50 per share plus commission $1,980. 2. On April 1, purchased See Full Questions And Answers at solutionrank.com Refinancing of Short-Term Debt Andretti Inc. issued $10,000,000 of short-term commercial paper during the year 2010 to finance construction of a plant. At December 31, 2010, the corporation’s year-end, Andretti intends to refinance the commercial paper by issuing longterm debt. However, because the corporation tempo Entries for Available-for-Sale Securities assume the same information as in E17-3 except that the securities are classified as available-for-sale. The fair value of the bonds at December 31 of each yearend is as follows. 2009 $534,200 2012 $517,000 2010 $515,000 2013 $500,000 2011 $513,000 (a) Prepare the journa What is the purpose of a cash flow hedge? What are hybrid securities? Give an example of a hybrid security. See Full Questions And Answers at solutionrank.com Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for investments. Refinancing of Short-Term Debt Dumars Corporation reports in the current liability section of its balance sheet at December 31, 2010 (its year-end), short-term obligations of $15,000,000, which includes the current portion of 12% long-term debt in the amount of $10,000,000 (matures in March 2011). Management has stated In what situation will the unrealized holding gain or loss on an available-for-sale security be reported in income? What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

See Full Questions And Answers at solutionrank.com When the equity method is applied, what disclosures should be made in the investor’s financial statements? Entries for Held-to-Maturity Securities on January 1, 2010, Jennings Company purchased at par 10% bonds having a maturity value of $300,000. They are dated January 1, 2010, and mature January 1, 2015, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category. (a) Prepa Trading Securities Entries on December 21, 2010, Zurich Company provided you with the following information regarding its trading securities. During 2011, Carolina Company stock was sold for $9,500. The fair value of the stock on December 31, 2011, was: Star gate Corp. stock—$19,300; Vector man Co. stock—$20,500. ( Equity Investments—Trading Swanson Company has the following securities in its trading portfolio of securities on December 31, 2010. (a) How much was Gator Co.’s share of Demo Co.’s net income for the year? (b) How much was Gator Co.’s share of Demo Co.’s dividends for the year? (c) What was Demo Co.’s tota See Full Questions And Answers at solutionrank.com Investment Accounted for under the Equity Method on July 1, 2011, Fontaine Company purchased for cash 40% of the outstanding capital stock of Knoblett Company. Both Fontaine Company and Knoblett Company have a December 31 year-end. Knoblett Company, whose common stock is actively traded in the over-the-counter market, What are the major advantages of notes to the financial statements? What types of items are usually reported in notes? Equity Securities Lexington Co. has the following available-for-sale securities outstanding on December 31, 2010 (its first year of operations). During 2011 Summerset Company stock was sold for $9,200, the difference between the $9,200 and the “fair valueâ€ of $8,800 being recorded as a “Gain on Sale of Securities Impairment of Debt Securities Cairo Corporation has municipal bonds classified as available forsale at December 31, 2010. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $740,000. The unrealized loss of $60,000 previously recognized as other comprehensive income and as a se See Full Questions And Answers at solutionrank.com Fair Value and Equity Method Compared) Gregory Inc. acquired 20% of the outstanding common stock of Henderson Inc. on December 31, 2010. The purchase price was $1,250,000 for

50,000 shares. Henderson Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2011. Henderson reported net inco Explain how trading securities are accounted for and reported. What is the fair value option? Where are gains and losses related to cash flow hedges involving anticipated transactions reported? See Full Questions And Answers at solutionrank.com Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler Corp. with a carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other than-temporary. Prep Where can authoritative iGAAP be found related to investments? What are the major types of subsequent events? Indicate how each of the following “subsequent eventsâ€ would be reported. (a) Collection of a note written off in a prior period. (b) Issuance of a large preferred stock offering. (c) Acquisition of a company in a different industry. (d) Destruction of a major plant in Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders’ equity and income. See Full Questions And Answers at solutionrank.com What is a variable-interest entity? Indicate how unrealized holding gains and losses should be reported for investment securities classified as trading, available-for-sale, and held-to-maturity. Financial Statement Effect of Equity Securities Presented below are three unrelated situations involving equity securities. Situation 1 An equity security, whose market value is currently less than cost, is classified as available-for-sale but is to be reclassified as trading. Situation 2 A noncurrent portfolio with an Franklin Corp. has an investment that it has held for several years. When it purchased the investment, Franklin classified and accounted for it as available-for-sale. Can Franklin use the fair value option for this investment? Explain. See Full Questions And Answers at solutionrank.com

Call Option on August 15, 2010. Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. (Market price of an Outkast share is $40.) The option expires on January 31, 2011. The following dat Issues raised about Investment Securities you have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems. Jane Hens haw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting What constitutes “significant influenceâ€ when an investor’s financial interest is below the 50% level? The following information relates to Starbucks for 2007: net income $672.638 million; unrealized holding loss of $20.380 million related to available-for-sale securities during the year; accumulated other comprehensive income of $37.273 million on October 1, 2006. Assuming no other changes in accumulated other comprehe See Full Questions And Answers at solutionrank.com If the bonds in question 8 are classified as available-for sale and they have a fair value at December 31, 2010, of $3,604,000, prepare the journal entry (if any) at December 31, 2010, to record this transaction. When should a debt security be classified as held-to maturity? At what amount should trading, available-for-sale, and held-to-maturity securities be reported on the balance sheet Distinguish between a debt security and an equity security. See Full Questions And Answers at solutionrank.com Use the information from BE17-1, but assume the bonds are purchased as an available-for-sale security. Prepare Garfield’s journal entries for (a) The purchase of the investment, (b) The receipt of annual interest and discount amortization, and (c) The year-end fair value adjustment. The bonds have a yearend fair v Cash Flow Hedge on January 2, 2010, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result Fair Value Measurement Presented below is information related to the purchases of common stock by Lilly Company during 2010. (a) What entry would Lilly make at December 31, 2010, to

record the investment in Arroyo Company stock if it chooses to report this security using the fair value option? (b) What entry would Lil What is the cost of a long-term investment in bonds? See Full Questions And Answers at solutionrank.com Carow Corporation purchased, as a held-to-maturity investment, $60,000 of the 8%, 5-year bonds of Harrison, Inc. for $65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow’s journal entries for (a) The purchase of the investment, and (b) The receipt of semiannual interest and premiu Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable? What quantitative materiality test is applied to determine whether a segment is significant enough to warrant separate disclosure? Available-for-Sale Securities Entries and Reporting Player Corporation purchases equity securities costing $73,000 and classifies them as available-for-sale securities. At December 31, the fair value of the portfolio is $67,000. Prepare the adjusting entry to report the securities properly. Indicate the statement prese See Full Questions And Answers at solutionrank.com Loss Contingency Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those rela (a) Assuming no Securities Fair Value Adjustment (Available- for-Sale) account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company’s available-for-sale securities have a market value $60,000 below cost. (b) Assume the same information as part (a), except that Lau Fair Value Hedge) On January 2, 2010, Mac Cloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. Mac Cloud now wants to change the note to a variable-rate note. As a result, on January 2, 2010, Mac Cloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and The following information was described in a note of Canon Packing Co. “During August, Holland Products Corporation purchased 311,003 shares of the Company’s common stock which constitutes approximately 35% of the stock outstanding. Holland has since obtained representation on the Board of Directors.â€ “An affil

See Full Questions And Answers at solutionrank.com Investment Classifications For the following investments identify whether they are: 1. Trading Securities 2. Available-for-Sale Securities 3. Held-to-Maturity Securities Each case is independent of the other. (a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value incr Distinguish between the accounting treatment for available- for-sale equity securities and trading equity securities. Identify and explain the different types of classifications for investment in equity securities. What purpose does the variety in bond features (types and characteristics) serve? See Full Questions And Answers at solutionrank.com Hendricks Corporation purchased trading investment bonds for $50,000 at par. At December 31, Hendricks received annual interest of $2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) The purchase of the investment, (b) The interest received, and (c) The fair value adjustm Warranties the Dotson Company, owner of Bleacher Mall, charges Rich Clothing Store a rental fee of $600 per month plus 5% of yearly profits over $500,000. Matt Rich, the owner of the store, directs his accountant, Ron Hamilton, to increase the estimate of bad debt expense and warranty costs in order to keep profits at Equity Investment on July 1, 2010, Selig Company purchased for cash 40% of the outstanding capital stock of Spoor Corporation. Both Selig and Spoor have a December 31 year-end. Spoor Corporation, whose common stock is actively traded on the American Stock Exchange, paid a cash dividend on November 15, 2010, to Selig Co Journal Entries for Fair Value and Equity Methods Presented below are two independent situations. Situation 1 Hatcher Cosmetics acquired 10% of the 200,000 shares of common stock of Ramirez Fashion at a total cost of $14 per share on March 18, 2010. On June 30, Ramirez declared and paid a $75,000 cash dividend. On Dece See Full Questions And Answers at solutionrank.com What is the GAAP definition of fair value? Fair Value Addison Manufacturing holds a large portfolio of debt and equity securities as an investment. The fair value of the portfolio is greater than its original cost, even though some securities have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-e

What is the full disclosure principle in accounting? Why has disclosure increased substantially in the last 10 years? Identify and explain the three types of classifications for investments in debt securities. See Full Questions And Answers at solutionrank.com Entries for Held-to-Maturity Securities on January 1, 2009, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2009, and mature January 1, 2014, with interest receivable December 31 of each year. Roos Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock as an available-for sale investment for $13,200. During the year, Sherman paid a cash dividend of $3.25 per share. At yearend, Sherman stock was selling for $34.50 per share. Prepare Fairbanks’s journal entries to record (a) The purchase of the Current versus Noncurrent Classification Rodriguez Corporation includes the following items in its liabilities at December 31, 2010. 1. Notes payable, $25,000,000, due June 30, 2011. 2. Deposits from customers on equipment ordered by them from Rodriguez, $6,250,000. 3. Salaries payable, $3,750,000, due January 14, 2011 Use the information from BE17-5 but assume the stock was purchased as a trading security. Prepare Fairbanks’s journal entries to record (a) The purchase of the investment, (b) The dividends received, and (c) The fair value adjustment. See Full Questions And Answers at solutionrank.com Elizabeth Corp. has an investment with a carrying value (equity method) on its books of $170,000 representing a 30% interest in Borg Company, which suffered a $620,000 loss this year. How should Raleigh Corp. handle its Portionate share of Borg’s loss? Equity Investments—Trading Swanson Company has the following securities in its trading portfolio of securities on December 31, 2010. All of the securities were purchased in 2010. In 2011, Swanson completed the following securities transactions. March 1 sold the 1,500 shares of Parker, Inc., Common, @ $45 less fees o When is a debt security considered impaired? Explain how to account for the impairment of an available-for sale debt security. What are diversified companies? What accounting problems are related to diversified companies? See Full Questions And Answers at solutionrank.com

Why are held-to-maturity investments applicable only to debt securities? Comprehensive Income Disclosure assume the same information as E17-9 and that Wenger, Inc. reports net income in 2010 of $120,000 and in 2011 of $140,000. Total holding gains (including any realized holding gain or loss) arising during 2011 total $30,000. (a) Prepare a statement of comprehensive income for 2010 startin Fair Value Hedge Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, nonprepayable $1,000,000 note payable on December 31, 2010. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a Hatch Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received in excess of Hatch’s share of investee’s earnings subsequent to the date of investment? See Full Questions And Answers at solutionrank.com Nature of Liabilities Presented below is the current liabilities section of Micro Corporation. Answer the following questions. (a) What are the essential characteristics that make an item a liability? (b) How does one distinguish between a current liability and a long-term liability? (c) What are accrued liabilities? G The FASB requires a reconciliation between the effective tax rate and the federal government’s statutory rate. Of what benefit is such a disclosure requirement? Ramirez Company has an available-for-sale investment in the 6%, 20-year bonds of Soto Company. The investment was originally purchased for $1,200,000 in 2009. Early in 2010, Ramirez recorded an impairment of $300,000 on the Soto investment, due to Soto’s financial distress. In 2011, Soto returned to profitability and Cash Flow Hedge Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in October 2010, for clubs that will be shipped in the holiday shopping season. However, if the price of titanium increases, this will increase the cost to produc See Full Questions And Answers at solutionrank.com What is meant by the term underlying as it relates to derivative financial instruments? On July 1, 2010, Wheeler Company purchased $4,000,000 of Duggan Company’s 8% bonds, due on July 1, 2017. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,500,000 to yield 10%. Determine the amount of interest revenue Wheeler should report on its income statement for year ended

Explain why reclassification adjustments are necessary. Equity Investment—Trading Feiner Co. had purchased 300 shares of Guttman Co. for $40 each this year and classified the investment as a trading security. Feiner Co. sold 100 shares of the stock for $43 each. At year end the price per share of the Guttman Co. stock had dropped to $35. Prepare the journal entries for th See Full Questions And Answers at solutionrank.com Garfield Company purchased, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) The purchase of the investment, and (b) The receipt of annual interest and discount amortization. Assume effective Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment. Explain the difference between the voting-interest model and the risk-and-reward model used for consolidation. Where on the asset side of the balance sheet ar...