Accounting Practice: Depreciation, Securities, and Bonds
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Accounting Practice Problems: Solutions & Explanations
Depreciation Calculation: Custom Closets Fixtures
Custom Closets purchased office fixtures on January 1. The initial cost was $20,000, and the fixtures had a residual value of $4,000. The fixtures were initially assigned a useful life of 8 years.
After the end of three years, it was determined that the fixtures would be obsolete in 2 more years, and their residual value would still be $4,000.
Depreciation for Fourth Year (Straight-Line Method)
Answer: $5,000
Marketable Securities: Income Statement Reporting
Unrealized Gains/Losses on Income Statement?
Answer: Trading securities
Available-for-Sale Securities: Fair Value Adjustment
On January 1, 2016, Becky Corporation purchased 200 shares of Emily Corporation for $25 per share. The investment is classified as available-for-sale securities. During the year, a $300 cash dividend was received from the Emily shares. At the end of the year, Emily’s stock was selling for $36 per share.
Journal Entry: Adjusting AFS Securities to Fair Value
Answer: Debit Allowance to Adjust Investment to Market and credit Unrealized Gain on Available-for-Sale Securities for $2,200
Comprehensive Income: Available-for-Sale Investments
On January 1, 2016, Becky Corporation purchased 500 shares of Emily Corporation for $15 per share. The investment is classified as available-for-sale securities. During the year, a $600 cash dividend was received from the Emily shares. Becky reported net income for the year of $30,000. At the end of the year, Emily’s stock was selling for $20 per share.
Comprehensive Income Calculation for AFS Investments
Answer: $32,500
Held-to-Maturity Bonds: Purchase Journal Entry
On January 1, 2015, Dodge Company purchased $500,000, 6% bonds at a price of 90.4 and a maturity date of January 1, 2025. Dodge Company intends to hold the bonds until their maturity date. Interest is paid semiannually, on January 1 and July 1. Dodge Company has a calendar year end.
Journal Entry: Purchasing Held-to-Maturity Bonds
Answer: Debit Held-to-Maturity Investment in Bonds for $452,000 and credit Cash for $452,000.
Bond Investment Amortization: Straight-Line Method
On January 1, 2015, Corbin Company purchased $100,000, 5% bonds at a price of 99 and a maturity date of January 1, 2025. Corbin Company intends to hold the bonds until their maturity date. Interest is paid semiannually, on January 1 and July 1. Corbin Company has a calendar year end.
Amortizing Held-to-Maturity Bonds (Straight-Line)
Answer: Debit Held-to-Maturity Investment in Bonds for $50 and credit Interest Revenue for $50.