ACCT 3312 Lecture Notes - Lecture 1: Income Statement, Equity Method, Disclose

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2 Feb 2021

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In chapters 14 and 15, we discussed bonds and stock from the issuer"s perspective. Chapter 16, we will discuss how to account for bonds and stock from the investor"s perspective. Interest revenue: (if there was a premium or discount, that also takes effect in this entry by adding to/deducting from the investment account) Gain on sale of investment xx (reported on income statement in non- Dividend income xx operating section, would be debited if sold at a loss) Conceptual framework discussion: fair value versus cost: report the investment at its cost on the date of acquisition. There is a trade-off between the two fundamental qualitative characteristics: relevance (fair value) and faithful representation (cost-basis method). Debt investment classifications: held-to-maturity securities: dependent on whether or not investment has both the. _________________________________________ to hold a debt investment until maturity. Identical to the process of determining the initial price of a bond (chapter 14. )

Related Questions

Selected transactions completed by Equinox Products Inc. duringthe fiscal year ended December 31, 2016, were as follows:

Record on journal page 10:

Jan.	3	Issued 15,000 shares of $20 par common stock at $30, receivingcash.
Feb.	15	Issued 4,000 shares of $80 par preferred 5% stock at $100,receiving cash.
May	1	Issued $500,000 of 10-year, 5% bonds at 104, with interestpayable semiannually.
	16	Declared a dividend of $0.50 per share on common stock and$1.00 per share on preferred stock. On the date of record, 100,000shares of common stock were outstanding, no treasury shares wereheld, and 20,000 shares of preferred stock were outstanding.Journalize this transaction as a single entry.
	26	Paid the cash dividends declared on May 16.
Jun.	1	Purchased 7,500 shares of Solstice Corp. at $40 per share, plusa $150 brokerage commission. The investment is classified as anavailable-for-sale investment.
	8	Purchased 8,000 shares of treasury common stock at $33 pershare.
	22	Purchased 40,000 shares of Pinkberry Co. stock directly fromthe founders for $24 per share. Pinkberry has 125,000 shares issuedand outstanding. Equinox Products Inc. treated the investment as anequity method investment.
	30	Declared a $1.00 cash dividend per share on preferred stock. Onthe date of record, 20,000 shares of preferred stock wereoutstanding.
Jul.	11	Paid the cash dividends declared on Jul. 11 to the preferredstockholders.
Aug.	27	Received $27,500 dividend from Pinkberry Co. investment of Jun.22.

Record on journal page 11:

Oct.

Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directlyfrom the issuing company, at their face amount plus accruedinterest of $375. The bonds are classified as a held-to-maturitylong-term investment.

Sold, at $38 per share, 2,600 shares of treasury common stockpurchased on Jun. 8.

Received a dividend of $0.60 per share from the Solstice Corp.investment on Jun. 1.

Sold 1,000 shares of Solstice Corp. at $45, includingcommission.

Recorded the payment of semiannual interest on the bonds issuedon May 1 and the amortization of the premium for six months. Theamortization is determined using the straight-line method.

Dec.

Accrued interest for three months on the Dream Inc. bondspurchased on Oct. 1.

Pinkberry Co. recorded total earnings of $240,000. EquinoxProducts recorded equity earnings for its share of Pinkberry Co.net income.

The fair value for Solstice Corp. stock was $39.02 per share onDecember 31, 2016. The investment is adjusted to fair value, usinga valuation allowance account. Assume Valuation Allowance forAvailable-for-Sale Investments had a beginning balance of zero.

CHART OF ACCOUNTS

Equinox Products Inc.

General Ledger

	ASSETS
110	Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
131	Merchandise Inventory
132	Interest Receivable
133	Prepaid Expenses
141	Investments-Solstice Corp.
142	Investment in Pinkberry Co. Stock
143	Investment in Dream Inc. Bonds
144	Valuation Allowance for Available-for-Sale Investments
181	Store Buildings and Equipment
182	Accumulated Depreciation-Store Buildings and Equipment
183	Office Buildings and Equipment
184	Accumulated Depreciation-Office Buildings and Equipment
191	Goodwill

	LIABILITIES
211	Accounts Payable
221	Income Tax Payable
225	Cash Dividends Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Preferred Stock
312	Paid-in Capital in Excess of Par-Preferred Stock
321	Common Stock
322	Paid-in Capital in Excess of Par-Common Stock
331	Retained Earnings
341	Cash Dividends
351	Treasury Stock
352	Paid-in Capital from Sale of Treasury Stock
361	Unrealized Gain (Loss) on Available-for-Sale Investments

	REVENUE
410	Sales
611	Dividend Revenue
621	Interest Revenue
631	Income from Pinkberry Co.
641	Gain on Sale of Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
520	Sales Salaries Expense
521	Sales Commissions
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
537	Store Supplies Expense
538	Office Supplies Expense
539	Office Rent Expense
541	Income Tax Expense
551	Depreciation Expense-Store Equipment
552	Depreciation Expense-Office Equipment
591	Miscellaneous Selling Expense
592	Miscellaneous Administrative Expense
710	Interest Expense
731	Loss on Sale of Investments

1. Journalize the selected transactions. Refer to the Chart ofAccounts for exact wording of account titles. Scroll down forjournal page 11.

Journal 10

Date	Description	Post. Ref	Debit	Credit

Journal 11

Date	Description	Post. Ref	Debit	Credit

burgundysquirrel650

Selected transactions completed by Equinox Products Inc. duringthe fiscal year ended December 31, 2016, were as follows:

Record on journal page 10:

Jan.	3	Issued 15,000 shares of $20 parcommon stock at $30, receiving cash.
Feb.	15	Issued 4,000 shares of $80 parpreferred 5% stock at $100, receiving cash.
May	1	Issued $500,000 of 10-year, 5%bonds at 104, with interest payable semiannually.
	16	Declared a dividend of $0.50 pershare on common stock and $1.00 per share on preferred stock. Onthe date of record, 100,000 shares of common stock wereoutstanding, no treasury shares were held, and 20,000 shares ofpreferred stock were outstanding. Journalize this transactionas a single entry.
	26	Paid the cash dividends declared onMay 16.
Jun.	1	Purchased 7,500 shares of SolsticeCorp. at $40 per share, plus a $150 brokerage commission. Theinvestment is classified as an available-for-sale investment.
	8	Purchased 8,000 shares of treasurycommon stock at $33 per share.
	22	Purchased 40,000 shares ofPinkberry Co. stock directly from the founders for $24 per share.Pinkberry has 125,000 shares issued and outstanding. EquinoxProducts Inc. treated the investment as an equity methodinvestment.
	30	Declared a $1.00 cash dividend pershare on preferred stock. On the date of record, 20,000 shares ofpreferred stock were outstanding.
Jul.	11	Paid the cash dividends declared onJul. 11 to the preferred stockholders.
Aug.	27	Received $27,500 dividend fromPinkberry Co. investment of Jun. 22.

Record on journal page 11:

Oct.	1	Purchased $90,000 of Dream Inc.10-year, 5% bonds, directly from the issuing company, at their faceamount plus accrued interest of $375. The bonds are classified as aheld-to-maturity long-term investment.
	7	Sold, at $38 per share, 2,600shares of treasury common stock purchased on Jun. 8.
	14	Received a dividend of $0.60 pershare from the Solstice Corp. investment on Jun. 1.
	29	Sold 1,000 shares of Solstice Corp.at $45, including commission.
	31	Recorded the payment of semiannualinterest on the bonds issued on May 1 and the amortization of thepremium for six months. The amortization is determined using thestraight-line method.
Dec.	31	Accrued interest for three monthson the Dream Inc. bonds purchased on Oct. 1.
	31	Pinkberry Co. recorded totalearnings of $240,000. Equinox Products recorded equity earnings forits share of Pinkberry Co. net income.
	31	The fair value for Solstice Corp.stock was $39.02 per share on December 31, 2016. The investment isadjusted to fair value, using a valuation allowance account. AssumeValuation Allowance for Available-for-Sale Investments had abeginning balance of zero.

Required:

Journalize the selectedtransactions. Refer to the Chart of Accounts for exact wording ofaccount titles.

After all of the transactionsfor the year ended December 31, 2016, had been posted [includingthe transactions recorded in part (1) and all adjusting entries],the data that follows were taken from the records of EquinoxProducts Inc.

Prepare a multiple-step incomestatement for the year ended December 31, 2016, concluding withearnings per share. In computing earnings per share, assume thatthe average number of common shares outstanding was 100,000 andpreferred dividends were $100,000. (Round earnings per share to thenearest cent.)*

Prepare a retained earningsstatement for the year ended December 31, 2016.*

Prepare a balance sheet inreport form as of December 31, 2016. *

*	Read the instructions aboveeach financial statement carefully. They may contain specificinstructions for completing the statement.

Income Statementdata:
Advertising expense	$150,000
Cost of merchandise sold	3,700,000
Delivery expense	30,000
Depreciation expense-officebuildings and equipment	30,000
Depreciation expense-storebuildings and equipment	100,000
Dividend revenue	4,500
Gain on sale of investments	4,980
Income from Pinkberry Co.investment	76,800
Income tax expense	140,500
Interest expense	21,000
Interest revenue	2,720
Miscellaneous administrativeexpense	7,500
Miscellaneous selling expense	14,000
Office rent expense	50,000
Office salaries expense	170,000
Office supplies expense	10,000
Sales	5,254,000
Sales commissions	185,000
Sales salaries expense	385,000
Store supplies expense	21,000

Retainedearnings and balance sheet data:
Accounts payable	$194,300
Accounts receivable	545,000
Accumulated depreciationâofficebuildings and equipment	1,580,000
Accumulated depreciationâstorebuildings and equipment	4,126,000
Allowance for doubtfulaccounts	8,450
Available-for-sale investments (atcost)	260,130
Bonds payable, 5%, due 2024	500,000
Cash	246,000
Common stock, $20 par
(400,000 shares authorized; 100,000shares issued, 94,600 outstanding)	2,000,000
Dividends:
Cash dividends for commonstock	155,120
Cash dividends for preferredstock	100,000
Goodwill	500,000
Income tax payable	44,000
Interest receivable	1,125
Investment in Pinkberry Co. stock(equity method)	1,009,300
Investment in Dream Inc. bonds(long term)	90,000
Merchandise inventory (December 31,2016),
at lower of cost (FIFO) ormarket	778,000
Office buildings and equipment	4,320,000
Paid-in capital from sale oftreasury stock	13,000
Excess of issue price overpar:
-Common	886,800
-Preferred	150,000
Preferred 5% stock, $80 par
(30,000 shares authorized; 20,000shares issued)	1,600,000
Premium on bonds payable	19,000
Prepaid expenses	27,400
Retained earnings, January 1,2016	9,319,725
Store buildings and equipment	12,560,000
Treasury stock
(5,400 shares of common stock atcost of $33 per share)	178,200
Unrealized gain (loss) onavailable-for-sale investments	(6,500)
Valuation allowance foravailable-for-sale investments	(6,500)

CHART OF ACCOUNTSEquinox Products Inc.General Ledger

	ASSETS
110	Cash
121	Accounts Receivable
122	Allowance for DoubtfulAccounts
131	Merchandise Inventory
132	Interest Receivable
133	Prepaid Expenses
141	Investments-Solstice Corp.
142	Investment in Pinkberry Co.Stock
143	Investment in Dream Inc. Bonds
144	Valuation Allowance forAvailable-for-Sale Investments
181	Store Buildings and Equipment
182	Accumulated Depreciation-StoreBuildings and Equipment
183	Office Buildings and Equipment
184	Accumulated Depreciation-OfficeBuildings and Equipment
191	Goodwill

	LIABILITIES
211	Accounts Payable
221	Income Tax Payable
225	Cash Dividends Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
311	Preferred Stock
312	Paid-in Capital in Excess ofPar-Preferred Stock
321	Common Stock
322	Paid-in Capital in Excess ofPar-Common Stock
331	Retained Earnings
341	Cash Dividends
351	Treasury Stock
352	Paid-in Capital from Sale ofTreasury Stock
361	Unrealized Gain (Loss) onAvailable-for-Sale Investments

	REVENUE
410	Sales
611	Dividend Revenue
621	Interest Revenue
631	Income from Pinkberry Co.
641	Gain on Sale of Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
520	Sales Salaries Expense
521	Sales Commissions
522	Office Salaries Expense
531	Advertising Expense
532	Delivery Expense
537	Store Supplies Expense
538	Office Supplies Expense
539	Office Rent Expense
541	Income Tax Expense
551	Depreciation Expense-StoreEquipment
552	Depreciation Expense-OfficeEquipment
591	Miscellaneous Selling Expense
592	Miscellaneous AdministrativeExpense
710	Interest Expense
731	Loss on Sale of Investments

Labels
Current assets
Current liabilities
December 31, 2016
For the Year Ended December 31,2016
Intangible assets
Investments
Less dividends
Long-term liabilities
Operating expenses
Other income and expenses
Paid-in capital
Add dividends
Property, plant, and equipment
AmountDescriptions
Available-for-sale investments
Decrease in retained earnings
Excess of issue price over par
Gross profit
Income before income tax
Income from operations
Increase in retained earnings
Miscellaneous selling expense
Net income
Net loss
Retained earnings, January 1,2016
Retained earnings, December 31,2016
Sales commissions
Sales salaries expense
Store supplies expense
Total administrative expenses
Total assets
Total (before treasury stock)
Total current assets
Total current liabilities
Total liabilities
Total liabilities and stockholdersâequity
Total long-term liabilities
Total investments
Total operating expenses
Total paid-in capital
Total property, plant, andequipment
Total selling expenses
Total stockholdersâ equity
Unamortized premium
Unamortized discount

Selected transactions completed by Equinox Products Inc. duringthe fiscal year ended December 31, 2016, were as follows:

Record on journal page 10:

Jan.	3	Issued 15,000 shares of $20 par common stock at $30, receivingcash.
Feb.	15	Issued 4,000 shares of $80 par preferred 5% stock at $100,receiving cash.
May	1	Issued $500,000 of 10-year, 5% bonds at 104, with interestpayable semiannually.
	16	Declared a dividend of $0.50 per share on common stock and$1.00 per share on preferred stock. On the date of record, 100,000shares of common stock were outstanding, no treasury shares wereheld, and 20,000 shares of preferred stock were outstanding.Journalize this transaction as a single entry.
	26	Paid the cash dividends declared on May 16.
Jun.	1	Purchased 7,500 shares of Solstice Corp. at $40 per share, plusa $150 brokerage commission. The investment is classified as anavailable-for-sale investment.
	8	Purchased 8,000 shares of treasury common stock at $33 pershare.
	22	Purchased 40,000 shares of Pinkberry Co. stock directly fromthe founders for $24 per share. Pinkberry has 125,000 shares issuedand outstanding. Equinox Products Inc. treated the investment as anequity method investment.
	30	Declared a $1.00 cash dividend per share on preferred stock. Onthe date of record, 20,000 shares of preferred stock wereoutstanding.
Jul.	11	Paid the cash dividends declared on Jul. 11 to the preferredstockholders.
Aug.	27	Received $27,500 dividend from Pinkberry Co. investment of Jun.22.

Record on journal page 11:

Oct.	1	Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directlyfrom the issuing company, at their face amount plus accruedinterest of $375. The bonds are classified as a held-to-maturitylong-term investment.
	7	Sold, at $38 per share, 2,600 shares of treasury common stockpurchased on Jun. 8.
	14	Received a dividend of $0.60 per share from the Solstice Corp.investment on Jun. 1.
	29	Sold 1,000 shares of Solstice Corp. at $45, includingcommission.
	31	Recorded the payment of semiannual interest on the bonds issuedon May 1 and the amortization of the premium for six months. Theamortization is determined using the straight-line method.
Dec.	31	Accrued interest for three months on the Dream Inc. bondspurchased on Oct. 1.
	31	Pinkberry Co. recorded total earnings of $240,000. EquinoxProducts recorded equity earnings for its share of Pinkberry Co.net income.
	31	The fair value for Solstice Corp. stock was $39.02 per share onDecember 31, 2016. The investment is adjusted to fair value, usinga valuation allowance account. Assume Valuation Allowance forAvailable-for-Sale Investments had a beginning balance ofzero.

Required:

Journalize the selected transactions. Refer to the Chart ofAccounts for exact wording of account titles.

After all of the transactions for the year ended December 31,2016, had been posted [including the transactions recorded in part(1) and all adjusting entries], the data that follows were takenfrom the records of Equinox Products Inc.

Prepare a multiple-step income statement for the year endedDecember 31, 2016, concluding with earnings per share. In computingearnings per share, assume that the average number of common sharesoutstanding was 100,000 and preferred dividends were $100,000.(Round earnings per share to the nearest cent.)*

Prepare a retained earnings statement for the year endedDecember 31, 2016.*

Prepare a balance sheet in report form as of December 31, 2016.*

*	Read the instructions above each financial statement carefully.They may contain specific instructions for completing thestatement.

Income Statement data:
Advertising expense	$ 150,000
Cost of merchandise sold	3,700,000
Delivery expense	30,000
Depreciation expense-office buildings and equipment	30,000
Depreciation expense-store buildings and equipment	100,000
Dividend revenue	4,500
Gain on sale of investments	4,980
Income from Pinkberry Co. investment	76,800
Income tax expense	140,500
Interest expense	21,000
Interest revenue	2,720
Miscellaneous administrative expense	7,500
Miscellaneous selling expense	14,000
Office rent expense	50,000
Office salaries expense	170,000
Office supplies expense	10,000
Sales	5,254,000
Sales commissions	185,000
Sales salaries expense	385,000
Store supplies expense	21,000

Retained earnings and balance sheet data:
Accounts payable	$ 194,300
Accounts receivable	545,000
Accumulated depreciationâoffice buildings and equipment	1,580,000
Accumulated depreciationâstore buildings and equipment	4,126,000
Allowance for doubtful accounts	8,450
Available-for-sale investments (at cost)	260,130
Bonds payable, 5%, due 2024	500,000
Cash	246,000
Common stock, $20 par
(400,000 shares authorized; 100,000 shares issued, 94,600outstanding)	2,000,000
Dividends:
Cash dividends for common stock	155,120
Cash dividends for preferred stock	100,000
Goodwill	500,000
Income tax payable	44,000
Interest receivable	1,125
Investment in Pinkberry Co. stock (equity method)	1,009,300
Investment in Dream Inc. bonds (long term)	90,000
Merchandise inventory (December 31, 2016),
at lower of cost (FIFO) or market	778,000
Office buildings and equipment	4,320,000
Paid-in capital from sale of treasury stock	13,000
Excess of issue price over par:
-Common	886,800
-Preferred	150,000
Preferred 5% stock, $80 par
(30,000 shares authorized; 20,000 shares issued)	1,600,000
Premium on bonds payable	19,000
Prepaid expenses	27,400
Retained earnings, January 1, 2016	9,319,725
Store buildings and equipment	12,560,000
Treasury stock
(5,400 shares of common stock at cost of $33 per share)	178,200
Unrealized gain (loss) on available-for-sale investments	(6,500)
Valuation allowance for available-for-sale investments	(6,500)

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ACCT 3312 Lecture Notes - Lecture 1: Income Statement, Equity Method, Disclose

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