14-33

Name: SOLUTION Enter the appropriate amounts in the shaded cells in columns E, G, I, K and M.

1)

2001 Jan. 1

Computation of Semiannual Interest Value x 7% $ 80,000 7% 120,000

Rate

Portion of year

7.0% 7.5%

50.0% 50.0%

$ $

2,800 4,500 7,300

Journal Entry: Cash Interest Revenue To record receipt of interest on U.S. Treasury bonds. Apr. 1 Computation of Bond Sale Amounts
Amount

7,300 7,300

Price

Selling price Less: Brokerage fees Cost of bonds Gain on sale Accrued interest:
Value

$ 60,000

1.02 200 60,375

61,200 60,575 625

$ x
Rate

Portion of year

$ 60,000 Journal Entry: Cash

7.5%

25.0%

1,125

62,125 Investment in Trading Securities - 7% Bonds Realized Gain on Sale of Securities Interest Revenue To record sale of 7% treasury bonds. 60,375 625 1,125

May 21 Journal Entry: Cash Dividend Revenue To record receipt of Conway Co. common dividend. July 1 Computation of Semiannual Interest Value x 7% $ 80,000 7% 60,000

50 50

Rate

Portion of year

7.0% 7.5%

50.0% 50.0%

$ $

2,800 2,250 5,050

Journal Entry: Cash Interest Revenue To record receipt of interest on U.S. Treasury bonds. Computation of Bond Sale Amounts
Amount

5,050 5,050

Price

Selling price Less: Brokerage fees Cost of bonds Loss on sale

$ 80,000

0.975 250 79,650

78,000 79,900 (1,900)

Journal Entry: Cash Realized Loss on Sale of Securities Investment in Trading Securities - 7% Bonds To record sale of 7% treasury bonds. Aug. 15 Journal Entry: Investment in Trading Securities - Nieman Inc. Stock Cash To record purchase of Nieman Inc. stock. Nov. 1 Computation of Bond Purchase Amounts
Amount

77,750 1,900 79,650

11,650 11,650

Price

Purchase price Plus: Brokerage fees Cost of bonds Accrued interest:

Value

$ 50,000

1.01

$ $

50,500 125 50,625

Rate

Portion of year

$ 50,000

8.0%

33.33%

1,333

Journal Entry: Investment in Trading Securities - 8% Bonds Interest revenue Cash To record purchase of 8% treasury bonds. Dec. 31 Computation of Semiannual Interest Value x 7% $ 60,000 8% 50,000

50,625 1,333 51,958

Rate

Portion of year

7.5% 8.0%

50.0% 50.0%

$ $

2,250 2,000 4,250

Journal Entry: Cash Interest Revenue To record receipt of interest on U.S. Treasury bonds. Dec. 31 Computation of Required Adjustment: Cost
Shares

4,250 4,250

Market x
Price

Conway Co. common Nieman Inc. common 7% U.S. Treasury bonds 8% U.S. Treasury bonds

$ 25,450 11,650 60,375 50,625 $ 148,100

200 100 $ 60,000 $ 50,000

Cost

110.0000 116.7500 1.0175 1.0100 Market

22,000 11,675 61,050 50,500 $ 145,225 $ $ 2,875 2,260 615

Balance required in market adjustment account:

$ 148,100

$ 145,225

Balance in market adjustment account, Dec. 31, 2000 Required adjustment Journal Entry: Unrealized Loss on Trading Securities Market Adjustment - Trading Securities To adjust for decline of securities.

615 615

2002 Jan. 2

Journal Entry: Cash Interest Revenue To record receipt of interest on U.S. Treasury bonds.

4,250 4,250

Feb. 1

Computation of Bond Sale Amounts

Amount

Price

Selling price Less: Brokerage fees Cost of bonds Loss on sale Accrued interest:
Value

$ 60,000

1.01 300 60,375

60,600 60,675 (75)

$ x
Rate

Portion of year

$ 60,000

7.5%

8.33%

375

Journal Entry: Cash Realized Loss on Sale of Securities Investment in Trading Securities - 7% Bonds Interest Revenue To record sale of 7% treasury bonds. 2) Balance Sheet Presentation Trading securities (at cost) Less: Market adjustments - trading securities Trading securities (at market, December 31, 2001)

60,675 75 60,375 375

$ 148,100 2,875 $ 145,225