Sample Research Questions

Zurich Company

On December 21, 2012, Zurich Company provided you with the following information regarding its trading securities.
December 31, 2012
Investments (Trading) Cost Fair Value Unrealized Gain (Loss)
Stargate Corp. stock $23,150 $22,150 $(1,000 )
Carolina Co. stock 13,730 12,730 (1,000 )
Vectorman Co. stock 23,150 23,890 740 
Total of portfolio $60,030 $58,770 (1,260 )
Previous fair value adjustment balance 0 
Fair value adjustment—Cr. $(1,260 )

During 2013, Carolina Company stock was sold for $13,140. The fair value of the stock on December 31, 2013, was: Stargate Corp. stock—$22,530; Vectorman Co. stock—$23,740.
(a) Prepare the adjusting journal entry needed on December 31, 2012.
(b) Prepare the journal entry to record the sale of the Carolina Company stock during 2013.
(c) Prepare the adjusting journal entry needed on December 31, 2013.

(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No. Account Titles and Explanation Debit Credit

Question 2 

Presented below are two independent situations.

Situation 1
Hatcher Cosmetics acquired 10% of the 220,800 shares of common stock of Ramirez Fashion at a total cost of $15 per share on March 18, 2012. On June 30, Ramirez declared and paid a $84,800 cash dividend. On December 31, Ramirez reported net income of $123,800 for the year. At December 31, the market price of Ramirez Fashion was $17 per share. The securities are classified as available-for-sale.

Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 26% of Nadal’s 34,500 outstanding shares of common stock at a total cost of $9 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $45,500. On December 31, Nadal reported a net income of $89,200 for the year.

Prepare all necessary journal entries in 2012 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date Account Titles and Explanation Debit Credit
Hatcher Cosmetics

Question 3 

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.
Feb. 1, 2012 Sharapova Company common stock, $115 par, 230 shares $36,700
April 1 U.S. government bonds, 10%, due April 1, 2022, interest payable April 1 and October 1, 112 bonds of $1,000 par each 112,000
July 1 McGrath Company 12% bonds, par $51,800, dated March 1, 2012, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2032 55,944

(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit

(b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2012, using the straight-line method. (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit

(c) The fair values of the investments on December 31, 2012, were:
Sharapova Company common stock $32,840
U.S. government bonds 148,680
McGrath Company bonds 65,590

What entry or entries, if any, would you recommend be made? (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation Debit Credit

(d) The U.S. government bonds were sold on July 1, 2013, for $119,920 plus accrued interest. Give the proper entry. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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