Assignments Must Be Completed Using Excel Format 1

Assignments Must Be Completed Using Excel Formatassignment 1accou

ASSIGNMENTS MUST BE COMPLETED USING EXCEL FORMAT Assignment 1: Accounting for bond investments Suppose Hale and Sons purchase $800,000 of 5% annual bonds of McPhee Corporation at face value on January 1, 2014. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2018. Hale intends to hold the McPhee bond investment until maturity. Requirements: 1.) Journalize Hale and Sons’ transactions related to the bonds for 2014. 2.) Journalize the entry required on the McPhee bonds maturity date. (Assume the last interest payment has already been recorded.) Assignment 2: Accounting for stock investments The beginning balance sheet of Text Source Co. included an $800,000 investment in Parson stock (20% ownership). During the year, Text Source completed the following investment transactions: Mar. 3 Purchase 6,000 shares at $9 per share of Andy Software common stock as a long-term, available-for-sale investment, representing 5% ownership. May 15 Received a cash dividend of $0.40 per share on the Andy investment. Dec. 15 Received a cash dividend of $80,000 from Parson investment. Dec. 31 Received Parson’s annual report showing $300,000 of net income. Dec. 31 Received Andy’s annual report showing $200,000 of net income for the year. Dec. 31 Parson’s stock fair value at year-end was $780,000. Dec. 31 Andy’s common stock fair value at year-end was $10 per share. Requirements: 1.) Journalize the transactions for the year if Text Source. 2.) Post transactions to T-accounts to determine the December 31 balances related to the investment and investment income accounts. 3.) Prepare Text Source’s partial balance sheet at December 31 from your answers in Requirement 2.

Paper For Above instruction

This paper addresses the accounting treatments for bond investments and stock investments as specified in the assignment instructions. It emphasizes the journal entries, investment valuation, income recognition, and reporting requirements associated with these investment activities within a corporate context, exemplified by Hale and Sons and Text Source Co.

Introduction

Investments in bonds and equities constitute essential components in a company's financial strategy, influencing both the risk profile and earning potential of the enterprise. Proper accounting for these investments ensures accurate financial reporting and compliance with accounting standards such as Generally Accepted Accounting Principles (GAAP). This paper explores the journal entries, valuation adjustments, and reporting procedures for bond investments and stock holdings as outlined in the assignment prompts.

Accounting for Bond Investments

On January 1, 2014, Hale and Sons purchased bonds from McPhee Corporation at face value, indicating an initial recognition of investment at historical cost. As the bonds pay interest semiannually on June 30 and December 31, the company must accrue interest income and record cash receipts accordingly.

For 2014, the initial investment involves a debit to bonds investment for $800,000 and a credit to cash. Each interest date, Hale and Sons should record interest income at 5% annual rate, which equates to $40,000 annually or $20,000 per semiannual period. The journal entries include recording interest receivable or cash when interest payments are made.

At maturity on December 31, 2018, Hale and Sons will remove the bond investment from their books and recognize any proceeds, typically the face value, alongside any amortized premium or discount if applicable. Since the bonds are purchased at face value, the final entry involves converting the bond investment into cash, reflecting the face value, assuming the last interest payment is already recognized.

Accounting for Stock Investments

Text Source Co. initially holds an $800,000 investment in Parson stock representing 20% ownership, classified likely as an investment in associates requiring the equity method or available-for-sale classification depending on intent and significance.

The purchase of 6,000 shares of Andy Software at $9 per share on March 3 is accounted for by debiting an available-for-sale investment account and crediting cash. The investment earns dividends, which are recognized as dividend income, and part of the dividend income affects the company’s earnings or accumulated OCI depending on classification.

Dividends from Parson and Andy are recorded upon receipt: a cash inflow and a reduction in the carrying amount of the investment if using the cost method or an income recognition under the equity method. Parson’s reported net income increases the investment’s carrying amount under the equity method, while dividends decrease it. Fair value adjustments at year-end involve recognizing unrealized gains or losses if classified as available-for-sale investments, affecting OCI and equity.

Journal Entries and Balance Sheet Preparation

All transactions are recorded with their respective debits and credits, considering the nature of the investment—whether held for sale or as a long-term equity interest. T-accounts are used to reconcile the balances, including investment account, dividend income, unrealized gains/losses, and net income from investments.

The final partial balance sheet reflects the carrying amounts of the bonds and stocks after considering all transactions, fair value adjustments, and accumulated income or OCI. This presentation provides stakeholders with a comprehensive view of the company's investment portfolio as of December 31.

Conclusion

The proper accounting for bond and stock investments involves multiple steps: initial recognition, periodic income or dividend recognition, fair value adjustments, and final disposition at maturity or sale. Following standards such as GAAP ensures accurate, transparent financial statements that reflect the company's investment activities and financial position.

References

• Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management. Cengage Learning.
• FASB Accounting Standards Codification (ASC 320, 321, 323). (2023). Investments—Debt Securities, Equity Securities, and Investments in Equity Method Investees.
• Gibson, C. H. (2022). Financial Reporting & Analysis. Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate Accounting (16th ed.). Wiley.
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• SEC. (2023). Securities and Exchange Commission Regulations on Investment Reporting. U.S. Government Printing Office.
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• Siegel, G. (2019). Corporate Finance: A Practical Approach. Routledge.
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