Question 1 - Investment in equity securities
Agee Corp. acquired a 25% interest in Trent Co. on January 1, 2010, for $500,000. At that time, Trent had 1,000,000 shares of its $1 par common stock issued and outstanding. During 2010, Trent paid cash dividends of $160,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share. Trent's net income for 2010 was $360,000. What is the balance in Agee's investment account at the end of 2010?
Question 2 - Percentage-of-completion method
Dalton Construction Co. contracted to build a bridge for $5,000,000. Construction began in 2010 and was completed in 2011. Data relating to the construction are:
2010 2011
Costs incurred $1,650,000 $1,375,000
Estimated costs to complete 1,350,000 -
Dalton uses the percentage-of-completion method.
Instructions
(a) How much revenue should be reported for 2010? Show your computation.
(b) Make the entry to record progress billings of $1,650,000 during 2010.
(c) Make the entry to record the revenue and gross profit for 2010.
(d) How much gross profit should be reported for 2011? Show your computation
Question 3 - Trading equity securities
Korman Company has the following securities in its portfolio of trading equity securities on December 31, 2010:
Cost Fair Value
5,000 shares of Thomas Corp., Common $155,000 $139,000
10,000 shares of Gant, Common 182,000 190,000
$337,000 $329,000
All of the securities had been purchased in 2010. In 2011, Korman completed the following securities transactions:
March 1 Sold 5,000 shares of Thomas Corp., Common @ $31 less fees of $1,500.
April 1 Bought 600 shares of Werth Stores, Common @ $45 plus fees of $550.
The Korman Company portfolio of trading equity securities appeared as follows on December 31, 2011:
Cost Fair Value
10,000 shares of Gant, Common $182,000 $195,500
600 shares of Werth Stores, Common 27,550 25,500
$209,550 $221,000
Instructions - Prepare the general journal entries for Korman Company for:
(a) the 2010 adjusting entry.
(b) the sale of the Thomas Corp. stock.
(c) the purchase of the Werth Stores' stock.
(d) the 2011 adjusting entry.
Question 4 - Investment in debt securities at a discount
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). (Assume bonds are available for sale.)
Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.