1) Bridgeport Corporation made the following cash purchases of securities during 2020, which is the first year in which Bridgeport invested in securities. 1. On January 15, purchased 8,800 shares of Sanchez Company’s common stock at $33.50 per share plus commission $1,744. 2. On April 1, purchased 4,400 shares of Vicario Co.’s common stock at $52 per share plus commission $2,964. 3. On September 10, purchased 6,160 shares of WTA Co.’s preferred stock at $26.50 per share plus commission $4,320. On May 20, 2020, Bridgeport sold 3,520 shares of Sanchez Company’s common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,388. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Bridgeport told you that the corporation plans to hold these securities for the long-term but may sell them in order to earn profits from appreciation in prices. The equity method of accounting is not appropriate for these stock purchases. A)Prepare the journal entries to record the above three security purchases. B)Prepare the journal entry for the security sale on May 20 C)Compute the unrealized gains or losses. And Prepare the adjusting entries for Bridgeport on December 31, 2020.
1) Bridgeport Corporation made the following cash purchases of securities during 2020, which is the first year in which Bridgeport invested in securities.
| 1. | On January 15, purchased 8,800 shares of Sanchez Company’s common stock at $33.50 per share plus commission $1,744. | |
| 2. | On April 1, purchased 4,400 shares of Vicario Co.’s common stock at $52 per share plus commission $2,964. | |
| 3. | On September 10, purchased 6,160 shares of WTA Co.’s |
On May 20, 2020, Bridgeport sold 3,520 shares of Sanchez Company’s common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,388. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Bridgeport told you that the corporation plans to hold these securities for the long-term but may sell them in order to earn profits from appreciation in prices. The equity method of accounting is not appropriate for these stock purchases.
A)Prepare the journal entries to record the above three security purchases.
B)Prepare the
C)Compute the unrealized gains or losses. And Prepare the
2)Presented below is an amortization schedule related to Ivanhoe Company’s 5-year, $120,000 bond with a 6% interest rate and a 3% yield, purchased on December 31, 2018, for $136,487.
|
Date |
Cash
Received |
Interest
Revenue |
Bond Premium
Amortization |
Carrying Amount
of Bonds |
||||
|---|---|---|---|---|---|---|---|---|
|
12/31/18
|
$136,487 | |||||||
|
12/31/19
|
$7,200 | $4,095 | $3,105 | 133,382 | ||||
|
12/31/20
|
7,200 | 4,001 | 3,199 | 130,183 | ||||
|
12/31/21
|
7,200 | 3,905 | 3,295 | 126,888 | ||||
|
12/31/22
|
7,200 | 3,807 | 3,393 | 123,495 | ||||
|
12/31/23
|
7,200 | 3,705 | 3,495 | 120,000 |
The following schedule presents a comparison of the amortized cost and fair
|
12/31/19
|
12/31/20
|
12/31/21
|
12/31/22
|
12/31/23
|
||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
Amortized cost
|
$133,382 | $130,183 | $126,888 | $123,495 | $120,000 | |||||
|
Fair value
|
$132,800 | $132,300 | $128,700 | $124,700 | $120,000 |
| (a) | Prepare the journal entry to record the purchase of these bonds on December 31, 2018, assuming the bonds are classified as held-to-maturity securities. | |
| (b) | Prepare the journal entry related to the held-to-maturity bonds for 2019. | |
| (c) | Prepare the journal entry related to the held-to-maturity bonds for 2021. | |
| (d) | Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale. | |
| (e) | Prepare the journal entries related to the available-for-sale bonds for 2019. | |
| (f) | Prepare the journal entries related to the available-for-sale bonds for 2021. |
3)Presented below is selected information related to the financial instruments of PinaCompany at December 31, 2020. This is Pina Company’s first year of operations.
|
Carrying
Amount |
Fair Value
(at December 31) |
|||
| Investment in debt securities (intent is to hold to maturity) | $43,500 | $44,400 | ||
| Investment in Chen Company stock | 848,100 | 967,300 | ||
| Bonds payable | 238,600 | 212,500 |
(a) Pina elects to use the fair value option for these investments. Assuming that Pina’s net income is $104,600 in 2020 before reporting any securities gains or losses, determine Pina’s net income for 2020. Assume that the difference between the carrying value and fair value is due to credit deterioration.
| Pina’s net income for 2020 |
(b) Record the journal entry, if any, necessary at December 31, 2020, to record the fair value option for the bonds payable
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