1. Garfield Company purchased, as a held-to-maturity investment, $94,800 of the 9%, 6-year bonds of Chester Corporation for $86,779, which provides an 11% 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 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

2. Garfield Company purchased, as an available-for-sale security, $94,800 of the 9%, 7-year bonds of Chester Corporation for $85,865, 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. (Assume a zero balance in
the Fair Value Adjustment account.) The bonds have a year-end fair value of $90,060. (Round answers to 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

3. Cleveland Company has a stock portfolio valued at $4,580 (available-for-sale). Its cost was $3,930. If the Fair Value Adjustment account has a debit balance of $287, prepare the journal entry at year-end. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

4. On January 1, 2013, Phantom Company acquires $327,200 of Spiderman Products, Inc., 8% bonds at a price of $310,926. The interest is payable each December 31, and the bonds mature December 31, 2015. The investment will provide Phantom Company a 10.00% yield. The bonds are classified as held-to-maturity.  Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-  line method. (Round to nearest dollar.) b) Prepare a3-year schedule of interest revenue and bond discount amortization, applying the effective-  interest method. (Round to nearest cent.) c) Prepare the journal entry for the interest receipt of December31,2013, and the discount amortization  under the straight-line method

5. Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2014. This is Dawson Company’s first year of operations.

(a) Dawson elects to use the fair value option whenever possible. Assuming that Dawson’s net income is $136,200 in 2014 before reporting any securities gains or losses, determine Dawson’s net income for 2014.

(b) Record the journal entry, if any, necessary at December 31, 2014, to record the fair value option for the bonds payable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

Discussion

Debt and Equity Investments” Please respond to the following:

• According to the text, currently, there are a variety of authorities accounting pronouncement dealing with debt and equity. From the e-Activity, summarize the current accounting treatment for investments in debt and equity securities. Identity three (3) issues with implementation that the Emergency Issues Task Force (EITF) has addressed. Recommend a way in which one could overcome these implementation issues.
• Imagine that you are an investment analyst for your organization and are responsible for the company’s investment portfolio. However, the president of the company is not familiar with the various classifications of investments. Your organization has tasked you with presenting a report to the president that compares and contrasts trading securities and available for sale for securities, and the impact the securities have on the financial statements. Also, include in your report a brief explanation of the accounting treatment for unrealized gains and losses and stress to management the importance of maintaining a portfolio of current and non-current securities