CH 16 INVESTMENTS Lecture 19, 20 Mata kuliah: F0024 – Pengantar Akuntansi II Tahun: 2010

Bina Nusantara University 3 QUESTIONS 1.What are the reasons that corporations invest in securities? 2.a. What is the cost of an investment in bonds? b. When is interest on bonds recorded? 5. What is the cost of an investment in stock?

QUESTIONS 9. What constitutes “significant influence” when an investor’s financial interest is below the 50% level? 10.Distinguish between the cost and equity methods of accounting for investments in stocks. 11.What are consolidated financial statements? Bina Nusantara University 4

P16-2A In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occured. Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600. Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400. Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1. Bina Nusantara University 5

P16-2A July 1 Received a cash dividend of $0.60 per share on the Hiens common stock. Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200. Sept. 1 Received a $1 per share cash dividend on the Pryce common stock. Oct. 1 Received the semiannual interest on the Roy bonds. Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees. Bina Nusantara University 6

P16-2A At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share. Instructions: a.Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T- account form). b.Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities. Bina Nusantara University 7

P16-2A c.Show he balance sheet presentation of investment securuties at December 31, d. Identify the income statement accounts and give the statement classification of each account. Bina Nusantara University 8

P16-6A The following data, presented in alphabetical order, are taken from the records of Urbina Corporation. Accounts payable$ 240,000 Accounts receivable 140,000 Accumulated depreciation-building 180,000 Accumulated depreciation-equipment 52,000 Allowance for doubtful accounts 6,000 Bonds payable (10%, due 2018) 500,000 Buildings 950,000 Cash 42,000 Bina Nusantara University 9

P16-6A Common stock ($10 par value; 500,000 shares authorized, 150,000 shares issued) 1,500,000 Dividend payable 80,000 Equipment 275,000 Goodwill 200,000 Income taxes payable 120,000 Investment in Flott common stock (10% ownership), at cost 278,000 Investment in Portico common stock (30% Ownership), at equity 380,000 Bina Nusantara University 10

P16-6A Land 390,000 Market adjustment-available-for-sale securities (Dr) 8,000 Merchandise inventory 170,000 Notes payable (due 2011) 70,000 Paid-in capital in excess of par value 130,000 Premium on bonds payable 40,000 Prepaid insurance 16,000 Retained earnings 103,000 Bina Nusantara University 11

P16-6A Short-term stock investment, at fair value (and cost) 180,000 Unrealized gain-available-for-sale securities 8,000 The investment in Flott common stock is considered to be along-term-available-for-sale securities. Instructions: Prepare a classified balance sheet at December 31, Bina Nusantara University 12