During 2015, Rooster Company purchased 5,000 shares of Hen Company common stock for $18 per share and

Question:

During 2015, Rooster Company purchased 5,000 shares of Hen Company common stock for $18 per share and 3,200 shares of Egg Company common stock for $21 per share. These investments are intended to be held as ready sources of cash and are classified as trading securities.

Also in 2015, Rooster purchased 6,400 shares of Chicken Company common stock for $27 per share and $80,000 of treasury notes at 103. These securities are classified as available for sale.

During 2015, Rooster received the following interest and dividend payments on its investments:

Hen Company...........................$2.50 per share dividend

Egg Company............................$1.25 per share dividend

Chicken Company.......................$1.00 per share dividend

Treasury notes........8% annual interest earned for six months

Fair values of the securities at December 31, 2015, were as follows:

Hen Company...................$21 per share

Egg Company...................$16 per share

Chicken Company..............$24 per share

Treasury notes..............................104

On March 23, 2016, the 3,200 shares of Egg common stock were sold for $16 per share. On June 30, 2016, the treasury notes were sold at 102 plus accrued interest.

Fair values of remaining securities at December 31, 2016, were as follows:

Hen Company.....................$20 per share

Chicken Company................$30 per share

Instructions:

1. Prepare all 2015 and 2016 journal entries related to these securities.

2. Describe how the following items would be treated on Rooster Company's statement of cash flows for the year ended December 31, 2016. Rooster uses the indirect method of reporting cash flows from operating activities. In all cases, assume that trading securities were acquired for operating purposes.

(a) Proceeds from the sale of Egg shares and any realized gain or loss from the sale.

(b) Proceeds from the sale of the treasury securities and any realized gain or loss from the sale.

(c) Any unrealized gain or loss on the remaining securities.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 978-1133957911

19th edition

Authors: Earl K. Stice, James D. Stice

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