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HW5
#1
Garfield Company purchased, as a held-to-maturity investment, $92,700 of the 9%, 12-year bonds of Chester Corporation for $75,474, which provides an 12% return. Prepare Garfield’s journal entries for (a) the purchase of the investment and (b) the receipt of annual interest and discount amortization. Assume effective interest amortization is used.
(Round answers to zero decimal places, e.g. 25,000. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
|
Debit |
Credit |
(b)
#2
Garfield Company purchased, as an available-for-sale securities, $63,100 of the 9%, 10-year bonds of Chester Corporation for $55,667, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. The bonds have a year-end fair value of $57,167. Assume effective interest amortization is used.
(Round answers to zero decimal places, e.g. 12,510. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
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Description/Account |
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| (a) | ||||||||
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(c) |
#3
Fairbanks Corporation purchased 300 shares of Sherman Inc. common stock as an available-for-sale investment for $10,440. During the year, Sherman paid a cash dividend of $2.95 per share. At year-end, Sherman stock was selling for $36.40 per share. Prepare Fairbanks’s journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.
#4
Fairbanks Corporation purchased 300 shares of Sherman Inc. common stock as an investment in Equity Investments (Trading) for $8,100. During the year, Sherman paid a cash dividend of $2.85 per share. At year-end, Sherman stock was selling for $29.10 per share. Prepare Fairbanks’s journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.
Description/Account
Debit
Credit
(a)
(b)
(c)
#5
(
Cash
Flow Hedge)
Hart Golf Co.
uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 290 ounces of titanium in October 2012, for clubs that will be shipped in the holiday shopping season. However, if the price of titanium increases, this will increase the cost to produce the clubs, which will result in lower profit margins.
To hedge the risk of increased titanium prices, on
May 1, 2012
, Hart enters into a titanium futures contract and designates this futures contract as a cash flow hedge of the anticipated titanium purchase. The notional amount of the contract is 290 ounces, and the terms of the contract give Hart the option to purchase titanium at a price of $726per ounce. The price will be good until the contract expires on November 30, 2012.
Assume the following data with respect to the price of the call options and the titanium inventory purchase.
|
Date |
Spot Price for Date November Delivery |
| May 1, 2012 |
$726 per ounce |
|
June 30, 2012 |
755 per ounce |
|
September 30, 2013 |
762 per ounce |
Present the journal entries for the following dates/transactions.
(If a memorandum entry is required, enter Memo Entry as the Description/Account and 0 for the amount.)
|
May 1, 2012–Inception of futures contract, no premium paid. |
|
June 30, 2012–Hart prepares financial statements. |
Description/Account
Debit
Credit
|
September 30, 2012–Hart prepares financial statements. |
Description/Account
Debit
Credit
|
(d) |
October 5, 2012–Hart purchases 290 ounces of titanium at $762 per ounce and settles the futures contract. |
| Cash |
|
(e) |
December 15, 2012–Hart sells clubs containing titanium purchased in October 2012 for $363,000. The cost of the finished goods inventory is $203,280. |
|
Cost of Goods Sold |
|
(f) |
Indicate the amount(s) reported in the income statement related to the futures contract and the inventory transactions on December 31, 2012. |
| Hart Golf Co. | ||
|
Partial Income Statement |
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For the Quarter Ended December 31, 2012 |
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|
Sales Revenue |
$ |
|
|
Gross Profit |
