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Problem III ? 20 Points Show step by step on the p...




Problem III ? 20 Points Show step by step on the part B there is a note of what to change from that part. Part A ? 10 Points On January 2, 2012, Lilly Company purchased 1,000 shares of Grey Company common stock for $36,000. The stock has a par value of $10 and is part of the total stock outstanding of 20,000 shares of Grey Company. Lilly Company classifies the stock as available-for-sale. Total stockholders' equity of Grey Company on January 2, 2012 was $600,000. Lilly?s securities-fair-value adjustment account for available-for-sale securities has a debit balance of $5,000 on January 1, 2012. Required: Prepare necessary journal entries in accordance with generally accepted accounting principles on the books of Lilly Company for the following transactions. (a) January 2, 2012: Lilly purchases the shares of Grey Company described above. (b) December 31, 2012: Lilly receives an $.80 per share dividend from Grey, and Grey announces net income for 2003 of $200,000. (c) December 31, 2012: Grey common is selling for $30 per share. Lilly's management views this decline as being only temporary in nature. Grey's common is Lilly's only available-for-sale security. (d) February 15, 2013: Lilly sells 500 of the shares purchased on January 2, 2012 at $35 per share. Part B ? 10 Points The information below relates to Elton Company's trading securities in 2013. Required: Prepare the journal entries for the following transactions. May 1, 2013 ? Purchased $250,000 par value of Beal Company bonds at 98 plus accrued interest. The bonds pay interest annually at 9% each December 31. Broker's commission was $2,500. September 1, 2013 ? Sold $125,000 par value of Beal Company bonds at 95 plus accrued interest. Broker's commission, taxes, and fees were $1,250. September 5, 2013 ? Purchased 4,000 shares of Null, Inc. common stock for $25 per share. The broker's commission on the purchase amounted to $1,500. ****Please look at Problem III, Part B, on page 11. I neglected to give you the due date of the bonds as well as the amortization method of the discount for the purchase of the Beal Company Bonds (it could be either the straight-line method or the preferred effective-interest method). I would have assumed that you would have used the effective-interest method which is required under GAAP unless the straight-line method would yield similar results. If I gave you the due date the discount would be amortized as an increase to Interest Revenue over the holding period of the bonds. However, unlike bonds payable, bonds as an investment are not required to have a discount or premium account, and rarely, if ever, is a discount or premium account used. Rather, the discount or premium amortization is made directly to the Investment account (for example, see pages 978 ? 979). Please do the following: 1. On the date of acquisition (May 1, 2013) debit the account Interest Revenue $7,500 for the accrued interest ($250,000 x .09 x 4/12). 2. On the date of sale of the $125,000 of the Beal Company Bonds, credit the account Interest Revenue for $7,500 ($125,000 x.09 x 8/12). It is just coincidental that these amounts are the same. What I want you to do is ignore any amortization of the discount associated with the purchase of the Beal Company Bonds. Your entry on May 1, 2013, will use the following accounts: DR Trading Securities $ DR Interest Revenue $7,500 CR Cash $ Your entry on September 1, 2013 will use the following accounts: DR Cash $ DR Loss on Trading Securities $ CR Interest Revenue $7,500 CR Trading Securities $


Paper#9317 | Written in 18-Jul-2015

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