Patterson Corp. carries an account in its general ledger called Investments, whi
ID: 2350398 • Letter: P
Question
Patterson 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, 2010 Shazz Company common stock, $100 par, 200 shares- $37,400
**April 1, 2010- U.S. government bonds, 11%, due April 1, 2020, interest payable April 1 and October 1, 110 bonds of $1,000 par each- $110,000
**July 1, 2010- McDaniel Company 12% bonds, par $50,000, dated March 1, 2010 purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2030- $54,000
INSTRUCTIONS:
1. Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale. **I know there are 2 accounts to be debited, but I only know one of those accounts is Available-for-Sale Securities. I think the account to be credited is Investments).
2. Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2010, using the straight-line method. **I know the Accounts to be used are Interest Receivable (debit), Interest Revenue (credit), & Investments (credit).
3. The fair values of the securities on December 31, 2010, were:
Shazz Company common stock- $31,800
U.S. government bonds- $124,700
McDaniel Company bonds- $58,600
What adjusting entry would you recommend be made? **Accounts are Securities Fair Value Adj. (debit) & Unrealized Holding Gain/Loss- Equity (credit).
4. The U.S. government bonds were sold on July 1,2011, for $119,200 plus accrued interest. Give the proper entry. **Accounts are Cash (debit), and there are 3 accounts to be debited with one of them being Interest Revenue.
Explanation / Answer
Debt Investments (Available-for-Sale) ...............................162,000
*Equity Investments (Available-for-Sale) ................................37,400
Interest Revenue ($50,000 X .12 X 4/12)............................... 2,000
Investments .............................................................................. 201,400
======================================
Interest Receivable ..........................................................-...8,025
Debt Investments (Available-for-Sale) ....................................------------------- 51
Interest Revenue....................................................................... ---------- 7,974
[Accrued interest[$50,000 X .12 X 10/12 = $5,000[
Premium amortization[6/236 X $2,000 = (51)
[Accrued interest[$110,000 X .11 X 3/12 = 3,025
=$7,974