Problems Marketable securities

Problem 17A-1
On April 1, 2016, Imperial Motors purchased $450,000 face value of the 8% bonds of Crest
Theaters, Inc. at a price of 98 plus accrued Interest. The bonds pay interest semiannually on
March 1 and September 1. Imperial regards these bonds as a short-term investment.

Instructions:

a. In general journal form, prepare the entries required in 2016 to record:

1. Purchase of the bonds on April 1.
2. Receipt of the semiannual interest payment on September 1.
3. Adjustment of the accounts at December 31 for bond interest earned since
September 1. (Imperial Motors adjusts and closes its accounts annually, using the
calendar year.)
b. Assume that on January 31, 2017, Imperial Motors sells the entire investment in Crest
Theatres bonds for $444,700 plus accrued interest. Prepare the entries to:
1. Accrue bond interest earned from December 31, 2016 through the date of sale.
2. Record the sale of the bonds on January 31, 2017.

Problem 17A-2
During the current year, the following transactions occurred relating to Talley Manufacturing
Companys investments in marketable equity securities:

Jan. 31 Purchased as a temporary investment 4,000 shares of Raleigh Corporation

common stock at $64.75 per share plus brokers commission of $1,400.

Mar. 31 Received a cash dividend of $1.25 per share from Raleigh Corporation. Raleigh
declared the dividend on February 15, payable on March 31 to stockholders of
record on March 15.

June 30 Raleigh Corporation distributed a 5% stock dividend.

July 31 Raleigh Corporation shares were split 2 for 1. Talley Manufacturing received
additional shares pursuant to this stock split.

Sept. 30 Raleigh Corporation paid a cash dividend of 70 cents per share. Dividend was
declared on August 25 payable on September 30 to stockholders of record on
September 15.
Dec. 21 Talley Manufacturing sold 3,000 shares of Raleigh Corporation stock at $29 per
share. Commission charges on the sale amounted to $600.

As of December 31, Raleigh Corporation common stock had a market value of $28.5 per share.
Talley Manufacturing classifies its Raleigh Corporation stock as a current asset and owns no
other marketable equity securities.

Instructions:

Prepare journal entries to account for this investment in Talley Manufacturings accounting
records. Include memorandum entries when appropriate to show changes in the cost basis per
share. Also include the year end adjusting entry if one is necessary.

Problem 17A-3
The marketable securities owned by Freitag Development at the beginning of the current year
are listed below. Management considers all investments in marketable securities to be current
assets.

$300,000 maturity value of Micro Computer 12% bonds due Apr. 30, 2025.
Interest payable on Apr. 30 and Oct. 31 of each year. Cost basis $990 per bond$297,000

4,000 shares of Ryan Corporation common stock. Cost basis $52.5 per share210,000

Transactions relating to marketable securities during the current year were as follows:

Jan. 21 Received seminannual cash dividend of 90 cents per share on the 4,000 shares of
Ryan Corporation common stock.

Feb. 8 Purchased 1,500 shares of Gramm Co. common stock at $39.75 per share.
Brokerage commissions amounted to $375.

Mar. 15 Received an additional 1,500 shares of Gramm Co. common stock as a result of a
2-for-1 split.

Apr. 30 Received semiannual interest on Micro Computer Co. 12% bonds. Accrued
interest of $6,000 had been recorded on December 31 of last year in the Bond
Interest Receivable account.

May 31 Sold $200,000 face value of Micro Computer Co. 12% bonds at a price of 103,
plus one months accrued interest, less a brokerage commission of $575.
July 21 Received cash dividend on 4,000 shares of Ryan Corporation common stock.
Amount of dividend has increased to $1.05 per share.

Oct. 18 Received an additional 200 shares of Ryan Corporation common stock as a result
of a 5% stock dividend.

Oct. 19 Sold 1,200 shares of Ryan Corporation common stock at $47 per share, less a
brokerage commission of $250.

Oct. 31 Received semiannual interest payment on remaining $100,000 face value of

Micro Computer Co. 12% bonds.

At December 31 of the current year, the quoted market prices of the marketable equity
securities owned by Freitag Development were as follows: Ryan Corporation, $46 per share;
Gramm Co. $21.5 per share. The Micro Computer Co. 12% bonds were quoted at 102.5 on this
date.

Instructions:

a. Prepare journal entries to record the transactions listed above. Include an adjusting
entry to record the accrued interest on the remaining Micro Computer Co. bonds
through December 31.
b. Prepare a schedule showing the cost and market value of the marketable equity
securities owned by Freitag Development at December 31. Prepare an adjusting entry at
the end of the year if one is required.