Financial Accounting: An Integrated Statements Approach, 2nd Edition

Dec. 31 Received $40,000 of cash dividends on Jacob, Inc., stock. Jacob, Inc., reported net income

of $295,000 in 2010. Theater Arts uses the equity method of accounting for its

investment in Jacob, Inc.

Instructions

Journalize the entries for the preceding transactions.

Danka, Inc., develops and leases databases of publicly available information. The following se-

lected transactions relate to certain securities acquired as a long-term investment by Danka, Inc.,

whose fiscal year ends on December 31.

2006

Sept. 1 Purchased $480,000 of Sheehan Company 10-year, 8% bonds dated July 1, 2006, directly

from the issuing company, for $494,750 plus accrued interest of $6,400.

Dec. 31 Received the semiannual interest on the Sheehan Company bonds.

31 Recorded bond premium amortization of $500 on the Sheehan Company bonds. The

amortization amount was determined by using the straight-line method.

(Assume that all intervening transactions and adjustments have been properly

recorded and that the number of bonds owned has not changed from December 31,

2006, to December 31, 2011.)

2012

June 30 Received the semiannual interest on the Sheehan Company bonds.

Aug. 31 Sold one-half of the Sheehan Company bonds at 102 plus accrued interest. The broker

deducted $400 for commission, etc., remitting the balance. Prior to the sale, $500 of

premium on one-half of the bonds is to be amortized, reducing the carrying amount of

those bonds to $242,875.

Dec. 31 Received the semiannual interest on the Sheehan Company bonds.

31 Recorded bond premium amortization of $750 on the Sheehan Company bonds.

Instructions

Journalize the foregoing transactions.

570 Chapter 12 Special Income and Investment Reporting Issues

Problem 12-4A

Entries for bond investments

Goal 4

Alternate Problem

12-1B

Income tax, income statement

Goals1, 2

Net income, $82,000

ALTERNATE ACCOUNTING APPLICATION PROBLEMS

The following data were selected from the records of Healthy Pantry, Inc., for the current fiscal

year ended June 30, 2006:

Advertising expense $ 46,000

Cost of merchandise sold 279,000

Depreciation expense—office equipment 6,000

Depreciation expense—store equipment 31,000

Gain on discontinued operations 42,500

Income tax:

Applicable to continuing operations 32,000

Applicable to gain on discontinued operations 16,000

Applicable to loss on condemnation of land (reduction) 8,000

Insurance expense 9,000

Interest expense 18,000

Loss from condemnation of land 24,500