On Oct. 1, 2021, the beginning of the 4th quarter, Sooner Co. held $50 million of...

 

Transcribed Image Text:

On Oct. 1, 2021, the beginning of the 4th quarter, Sooner Co. held $50 million of 10% bonds of Castor Corp., purchased on May 1, 2021 at face value and held as trading securities. The company's fiscal year ends on December 31. Listed below are transactions during the fourth quarter of 2021 relating to the company's investments. Transaction Purchased 2 million shares of Melton Corp. common stock for $65 million. The purchase does not give Sooner significant influence as Melton has a total of 70 million shares issued. Received semiannual interest of $2.5 million from the Castor Corp. bonds. Purchased 10% bonds of Hughes Corp. at their $126 million face value, to be held until they mature in 2031. Semiannual interest is payable April 30 and October 31. Date Oct. 18 Oct. 31 Nov. 1 Nov. 1 Dec. 1 Dec. 20 Dec. 21 Dec. 23 Dec. 29 Sold the Castor Corp. bonds for $45 million. No unrealized gains and losses had been recorded on these bonds previously. Purchased 12% bonds of Phillips Corp. at their $50 million face value as available-for-sale securities. The bonds mature in 2031. Semiannual interest is payable May 31 and November 30. Purchased U.S. Treasury bonds for $7.6 million as trading securities, hoping to earn profits on short-term differences in prices. Purchased 4 million shares of Nelson Corp.'s 56 million shares of common stock for $56 million, planning to hold these shares indefinitely. Sold the Treasury bonds for $7.8 million. Received cash dividends of $11 million from the Melton Corp. shares of common stock. Additionally, on December 31, 2021, the company recorded any necessary adjusting entries relating to changes in fair values of the investments. Specifically, as of December 31: • The fair value of the Hughes Corp. bond investment was $18.7 million • The fair value of the Phillips Corp. bond investment was $47.0 million • The market price of the Melton Corp. common stock was $30.00 per share • The market price of the Nelson Corp. common stock was $19.00 per share Required: 1. Review the list of transactions above. Then, select the appropriate classification and accounting treatment for each investment listed in the table below. 2. Record each transaction or year-end adjusting entry, using "Investment in bonds" or Investment in equity securities" as the name of the investment accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) 3. Determine the amounts reported on Sooner's 2021 financial statements: a) BALANCE SHEET: the amounts reported as assets on the balance sheet for investments in equity securities and investments in debt securities (show the total Fair Value Adjustment for equity securities and debt securities) and b) INCOME STATEMENT; the amounts related to investments (show all gains/losses, realized and unrealized, as a single amount called "Net gain (or loss) on investments. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) Classification Journal Entries Investment Castor Corp. Melton Corp. Hughes Corp. Phillips Corp. Nelson Corp. Debt or Equity Investment? Financial Statements Accounting Classification < Classification Treatment of Changes in Fair Value During Investment Holding Period Journal Entries > On Oct. 1, 2021, the beginning of the 4th quarter, Sooner Co. held $50 million of 10% bonds of Castor Corp., purchased on May 1, 2021 at face value and held as trading securities. The company's fiscal year ends on December 31. Listed below are transactions during the fourth quarter of 2021 relating to the company's investments. Transaction Purchased 2 million shares of Melton Corp. common stock for $65 million. The purchase does not give Sooner significant influence as Melton has a total of 70 million shares issued. Received semiannual interest of $2.5 million from the Castor Corp. bonds. Purchased 10% bonds of Hughes Corp. at their $126 million face value, to be held until they mature in 2031. Semiannual interest is payable April 30 and October 31. Date Oct. 18 Oct. 31 Nov. 1 Nov. 1 Dec. 1 Dec. 20 Dec. 21 Dec. 23 Dec. 29 Sold the Castor Corp. bonds for $45 million. No unrealized gains and losses had been recorded on these bonds previously. Purchased 12% bonds of Phillips Corp. at their $50 million face value as available-for-sale securities. The bonds mature in 2031. Semiannual interest is payable May 31 and November 30. Purchased U.S. Treasury bonds for $7.6 million as trading securities, hoping to earn profits on short-term differences in prices. Purchased 4 million shares of Nelson Corp.'s 56 million shares of common stock for $56 million, planning to hold these shares indefinitely. Sold the Treasury bonds for $7.8 million. Received cash dividends of $11 million from the Melton Corp. shares of common stock. Additionally, on December 31, 2021, the company recorded any necessary adjusting entries relating to changes in fair values of the investments. Specifically, as of December 31: • The fair value of the Hughes Corp. bond investment was $18.7 million • The fair value of the Phillips Corp. bond investment was $47.0 million • The market price of the Melton Corp. common stock was $30.00 per share • The market price of the Nelson Corp. common stock was $19.00 per share Required: 1. Review the list of transactions above. Then, select the appropriate classification and accounting treatment for each investment listed in the table below. 2. Record each transaction or year-end adjusting entry, using "Investment in bonds" or Investment in equity securities" as the name of the investment accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) 3. Determine the amounts reported on Sooner's 2021 financial statements: a) BALANCE SHEET: the amounts reported as assets on the balance sheet for investments in equity securities and investments in debt securities (show the total Fair Value Adjustment for equity securities and debt securities) and b) INCOME STATEMENT; the amounts related to investments (show all gains/losses, realized and unrealized, as a single amount called "Net gain (or loss) on investments. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).) Classification Journal Entries Investment Castor Corp. Melton Corp. Hughes Corp. Phillips Corp. Nelson Corp. Debt or Equity Investment? Financial Statements Accounting Classification < Classification Treatment of Changes in Fair Value During Investment Holding Period Journal Entries >

Answer rating: 100% (QA)

Answer 1 Review the list of transactions above Then select the appropriate classification and accoun... View the full answer