AC 302 Chapter 17 Questions AND Problems

AC 302 Chapter 17 Questions AND Problems
Exercise 17 Question 2
Name				Date			
Instructor				Course			
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield							
Primer on Using Excel in Accounting by Rex A Schildhouse							
							
E17-2 (Entries for Held-to-Maturity Securities) On January 1, 2012, Jennings Company purchased 							
at par	10%	bonds having a maturity value of			$300,000 	. They are 	
dated January 1, 2012, and mature January 1, 2017, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.							
							
							
Instructions:							
(a) Prepare the journal entry at the date of the bond purchase.							
							
Jan 1, 12	Account Title				Amount		
	Account Title					Amount	
							
(b) Prepare the journal entry to record the interest received for 2012.							
							
Dec 31, 12	Account title				Amount		
	Account title					Amount	
							
(c) Prepare the journal entry to record the interest received for 2013.							
							
Dec 31, 13	Account Title				Amount		
	Account Title					Amount	
							
							
Exercise 17-5
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E17-5 (Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2012, Morgan .						
Company acquires		$300,000 	of Nicklaus, Inc.,		9%	bonds at a 
price of	$278,384 	. The interest is payable each December 31, and the bonds mature 				
December 31, 2014. The investment will provide Morgan Company a					12%	yield. The
bonds are classified as held-to-maturity.						
Note: Due to significant digits and rounding, there may be slight differences in values.						
Instructions:						
"(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the
     straight-line method."						
						
						
Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method						
9% Bond Purchased to Yield 12%						
	Date	"Cash
Received"	"Interest
Revenue"	"Bond
Discount
Amortization"	"Carrying
Amount
of Bonds"	
	Jan 1, 12	—	—	—	Amount	
	Dec 31, 12	Formula	Formula	Formula	Formula	
	Dec 31, 13	Formula	Formula	Formula	Formula	
	Dec 31, 14	Formula	Formula	Formula	Formula	
						
"(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the
     effective-interest method."						
						
						
Schedule of Interest Revenue and Bond Discount Amortization Effective Interest Method						
9% Bond Purchased to Yield 12%						
	Date	"Cash
Received"	"Interest
Revenue"	"Bond
Discount
Amortization"	"Carrying
Amount
of Bonds"	
	Jan 1, 12	—	—	—	Amount	
	Dec 31, 12	Formula	Formula	Formula	Formula	
	Dec 31, 13	Formula	Formula	Formula	Formula	
	Dec 31, 14	Formula	Formula	Formula	Formula	
						
"(c) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount
    amortization under the straight-line method."						
						
						
Dec 31, 13	Account Title			Amount		
	Account Title			Amount		
	Account Title				Amount	
						
"(d) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount
     amortization under the effective-interest method."						
						
						
Dec 31, 13	Account Title			Amount		
	Account Title			Amount		
	Account Title				Amount	
						
						
Exercise 17-23
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E17-23 (Fair Value Hedge) On January 2, 2012, MacCloud Co. issued a						4 
-year,	$100,000 	note at	6.00%	fixed interest, interest payable 		
semiannually. MacCloud now wants to change the note to a variable-rate note.						
As a result, on January 2, 2012, MacCloud Co. enters into an interest rate swap where it agrees to 						
receive	6.00%	fixed and pay LIBOR of		5.70%	for the first 6 months on	
$100,000 	At each 6-month period, the variable rate will be reset. The variable rate is reset to					
6.70%	on June 30, 2012.					
						
Instructions:						
(a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2012.						
						
(b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2012.						
						
						
				(a) 06/30/12	(b) 12/31/12	
	Text title			Amount	Amount	
	Text title			Percentage	Percentage	
	Text title			Formula	Formula	
	Text title			Amount	Amount	
	Text title			Formula	Formula	
	Text title					
	Text title			Formula		
	Text title			Formula	Formula	
	Text title			Formula	Formula	
						
						

Problem 17-5
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P17-5 (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its investment portfolio on December 31, 2012 (all securities were purchased in 2012):						
						
3,000 	shares of Anderson Co. common stock which cost					$58,500 
10,000 	shares of Munter Ltd. common stock which cost					$580,000 
6,000 	shares of King Company preferred stock which cost					$255,000 
The Securities Fair Value Adjustment account shows a credit of					$10,100 	at the end
of 2012.						
In 2013, Parnevik completed the following securities transactions.						
1. On January 15, sold		3,000 	shares of Anderson- common stock at			$22 
per share less fees of		$2,150 				
2. On April 17, purchased		1,000 	shares of Castle- common stock at			$33.50 
per share plus fees of		$1,980 				
On December 31, 2013, the market values per share of these securities were:						
	Munter Ltd.		$61.00 			
	King Co.		$40.00 			
	Castle Co.		$29.00 			
In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik will not actively trade these securities because the top management intends to hold them for more than one year.						
						
						
						
Instructions:						
(a) Prepare the entry for the security sale on January 15, 2013.						
						
	Text Title				Amount	
	Text Title				Amount	
	Text Title				Formula	
	Text Title				Amount	
	Text Title				Formula	
						
Jan 15, 13	Account Title			Amount		
	Account Title				Amount	
	Account Title				Amount	
						
(b) Prepare the journal entry to record the security purchase on April 17, 2013.						
						
	Total purchase price is:					
	Text title				Quantity	
	Text title				Amount	
	Text title				Formula	
	Text title				Amount	
	Text title				Formula	
						
Apr 17, 13	Account Title			Amount		
	Account Title				Amount	
						
"(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on
     December 31, 2013."						
						
						
	Available-for-Sale Portfolio—December 31, 2013					
	Securities		Cost	"Fair
Value"	"Unrealized
Gain
(Loss)"	
	Munter Ltd.		Amount	Amount	Formula	
	King Co.		Amount	Amount	Formula	
	Castle Co.		Amount	Amount	Formula	
	Total of portfolio		Formula	Formula	Formula	
	Previous securities fair value adjustment balance—Cr.				Amount	
	Securities fair value adjustment—Dr.				Formula	
						
Dec 31, 13	Account Title				Amount	
	Account Title					Amount
						
(d) How should the unrealized gains or losses be reported on Parnevik- balance sheet?						
						
Enter text answer as appropriate.						
						
						
						
						
						
						
Problem 17-11
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P17-11 (Equity Investments—Available-for-Sale) Castleman Holdings, Inc. had the following available-for-sale investment portfolio at January 1, 2012.						
						
1,000 	shares of Evers Company at			$15.00 	per share	$15,000 
900 	shares of Rogers Company at			$20.00 	per share	$18,000 
500 	shares of Chance Company at			$9.00 	per share	$4,500 
	Available-for-sale securities at cost:					$37,500 
	Securities fair value adjustment-Available-for-sale - Credit balance					($7,500)
	Available-for-sale securities at fair value:					$30,000 
						
During 2012, the following transactions took place:						
1. On March 1, Rogers Company paid a			$2.00 	per share dividend.		
2. On April 30, Castleman Holdings, Inc. sold				300 	shares of Chance Company	
for	$11.00 	per share				
3. On May 15, Castleman Holding, Inc. purchased				100 	more shares of Evers Co. 	
stock at	$16.00 	per share				
4. At December 31, 2012, the stocks had the following price per share values:						
	Evers Company		$17.00 			
	Rogers Company		$19.00 			
	Chance Company		$8.00 			
During 2013, the following transactions took place:						
5. On February 1, Castleman Holding, Inc. sold the remaining Chance shares for						$8 
per share.						
6. On March 1, Rogers Company paid a			$2 	per share dividend.		
7. On December 21, Evers Company declared a cash dividend of					$3 	per share to be 
paid in the next month.						
8. At December 31, 2013, the stocks had the following price per share values:						
	Evers Company		$19 			
	Rogers Company		$21.00 			
						
Instructions:						
(a) Prepare journal entries for each of the above transactions.						
						
1	Mar 1, 12	Account Title			Amount	
		Dividend Revenue				Amount
						
2	Apr 30, 12	Account Title			Amount	
		Account Title				Amount
		Account Title				Amount
						
3	May 15, 12	Account Title			Amount	
		Account Title				Amount
						
4	Dec 31, 12	Account Title			Amount	
						
		Account Title				Amount
						
	Security			Cost	"Fair
Value"	"Unrealized
Gain (Loss)"
	Evers Company			Formula		
	Calculation as desired				Formula	Formula
	Rogers Company			Formula		
	Calculation as desired				Formula	Formula
	Chance Company			Formula		
	Calculation as desired				Formula	Formula
	Total of Portfolio			Formula	Formula	Formula
	Previous securities fair value adjustment  bal.—Cr.					Amount
	Securities fair value adjustment—Dr.					Formula
						
5	Feb 1, 13	Account Title			Amount	
		Account Title			Amount	
		Account Title				Amount
						
6	Mar 1, 13	Account Title			Amount	
		Account Title				Amount
						
7	Dec 21, 13	Account Title			Amount	
		Account Title				Amount
						
8	Dec 31, 13	Account Title			Amount	
						
		Account Title				Amount
						
	Security			Cost	"Fair
Value"	"Unrealized
Gain (Loss)"
	Evers Company			Formula		Formula
	Calculation as desired				Formula	Formula
	Rogers Company			Formula		Formula
	Calculation as desired				Formula	Formula
	Total of Portfolio			Formula	Formula	Formula
	Previous securities fair value adjustment  bal.—Cr.					Amount
	Securities fair value adjustment—Dr.					Formula
						
(b) Prepare a partial balance sheet showing the Investments account at December 31, 2012, and 2013.						
						
Partial Balance Sheet as of:			December 31, 2012		December 31, 2013	
Current Assets - Dividends Receivable			Amount		Amount	
Investments:						
Available-for-sale securities, at fair value			Amount		Amount	
Stockholders' equity:						
Accumulated other comprehensive gain			Amount		Amount	
						
						
Problem 17-13
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P 17-13 (Derivative Financial Instrument) The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, 						
						
Miller Co. purchased a call option on Wade common shares on July 7, 2012, for						$240.00 
The call option is for		200 	shares (notional value), and the strike price is			
$70.00 	. (The market price of a share of Wade stock on that date is					
$70.00 	) The option expires on January 31, 2013. The following data are available with 					
respect to the call option						
Date		 Market Price of Wade Shares			Time Value of Call Option	
September 30, 2012		$77.00 		per share	$180.00 	
December 31, 2012		$75.00 		per share	$65.00 	
January 4, 2013		$76.00 		per share	$30.00 	
						
Instructions:						
"(a) Prepare the journal entry for Miller Co. for July 7, 2012—Investment in call option on
     Wade shares."						
						
						
Jul 7, 12	Account title				Amount	
	Account title					Amount
						
"(b) Prepare the journal entry for Miller Co. for September 30, 2012—Miller prepares financial
    statements."						
						
						
Sep 30, 12	Account title				Amount	
	Account title					Amount
						
Sep 30, 12	Account title				Amount	
	Account title					Amount
						
"(c) Prepare the journal entry for Miller Co. for December 31, 2012—Miller prepares financial
    statements."						
						
						
Dec 31, 12	Account title				Amount	
	Account title					Amount
						
Dec 31, 12	Account title				Amount	
	Account title					Amount
						
(d) Prepare the journal entry for Miller Co. for January 4, 2013—Miller settles the call option on the Wade shares.						
						
						
Jan 4, 13	Account title				Amount	
	Account title					Amount
						
Jan 4, 13	Account title				Amount	
	Account title					Amount
						
Jan 4, 13	Account title				Amount	
	Account title				Amount	
	Account title					Amount
						
		Call Option				
						
						
						
						
						
						
		Formula				
						
						
						

Problem 17-16
Name:				Date:			
Instructor:				Course:			
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield							
Primer on Using Excel in Accounting by Rex A Schildhouse							
							
P 17-16 (Fair Value Hedge Interest Rate Swap) On December 31, 2012, Mercantile Corp. had a							
$10,000,000 	8.00%	fixed-rate note outstanding, payable in 2 years. It decides to enter into a 					
2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of 							
the swap indicate that Mercantile will receive interest at a fixed rate of					8.00%	and will pay a 	
variable rate equal to the 6-month LIBOR rate, based on the					$10,000,000 	amount. The 	
LIBOR rate on December 31, 2012, is			7.00%	. The LIBOR rate will be reset every 6 			
months and will be used to determine the variable rate to be paid for the following 6-month period.							
"Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationship
meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt
fair values are as follows."							
							
							
Date		6-Month LIBOR Rate		Swap Fair Value		Debt Fair Value	
December 31, 2012		7.00%		-		$10,000,000 	
June 30, 2013		7.50%		($200,000)		$9,800,000 	
December 31, 2013		5.00%		$60,000 		$10,060,000 	
							
Instructions:							
(a)(1) Present the journal entries to record the entry, if any, swap on December 31, 2012.							
Enter text answer as appropriate.							
							
							
(a)(2) Present the journal entries to record the semiannual debt interest payment on June 30, 2013.							
							
Jun 30, 13	Account title				Amount		
	Account title					Amount	
							
(a)(3) Present the journal entries to record the settlement of the semiannual swap amount receivables 							
at	8.00%	less amount payable at LIBOR,			7.00%		
							
Jun 30, 13	Account title				Amount		
	Account title					Amount	
							
					Interest Received (Paid)		
							
							
	Text title				Amount		
	Text title				Amount		
	Text title				Amount		
							
(a)(4) Present the journal entries to record the change in the fair value of the debt on June 30, 2013.							
							
Jun 30, 13	Account title				Amount		
	Account title					Amount	
							
(a)(5) Present the journal entries to record the change in the fair value of the swap at June 30, 2013.							
							
Jun 30, 11	Account title				Amount		
	Account title					Amount	
							
"(b) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on December 31, 2012."							
							
							
	Balance Sheet						
	Liabilities						
	Account title			Amount			
	Income Statement			Amount			
							
"(c) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on June 30, 2013."							
							
							
	Balance Sheet						
	Liabilities						
	Account title				Amount		
	Account title				Amount		
	Income Statement						
	Account title				Amount		
							
	Account title				Amount		
	Account title				Amount		
	Total				Formula		
							
"(d) Indicate the amount(s) reported on the balance sheet and income statement related to the debt
     and swap on December 31, 2013."							
							
							
	Balance Sheet						
	Assets						
	Account title				Amount		
	Liabilities						
	Account title				Amount		
	Income Statement						
	Account title						
	First six months				Amount	See (c), above.	
	Second six months				Amount	See below.	
							
	Account title				Amount		
	Account title				Amount		
	Total				Formula		
							
	Text title				Amount		
	Text title				Amount		
	Cash settlement				Formula		
							
	Interest expense unadjusted						
	Text title				Amount		
	Text title				Amount		
					Formula