Question

please show work, thank you!

Online Corp. decided to invest its excess cash in debt and equity securities. The following securities were purchased on January 2, 2017:

Bonds issued by the Jata Corp. The bonds have a face value of $100,000, a 10 year life, and a stated interest rate of 5%. Interest is paid annually on December 31st. The bonds were purchased at $108,111 to yield 4% and Online classifies the debt investment as Available for Sale.

8,000 shares of Micro Corp.’s common stock at $60 per share. The securities are accounted for using the fair value method.

200,000 shares of Quazno Corp. at $25 per share. The shares make up 40% of the outstanding shares for Quazno, so are accounted for using the equity method. During 2017, Quazno reported net income of $600,000.

Additional Information:

Fair values as of December 31, 2017: Jata bonds $106,000

Micro stock $65 per share

Quazno stock $31 per share

In addition to the interest paid on the Jata bonds, the following dividends were paid on the equities during 2017: Micro $.40 per share

Quazno $.30 per share

REQUIRED

1. Prepare all entries related to the securities for 2017, including purchase, dividends and/or interest and any necessary adjusting entries. (14 points)

2. Ignoring income taxes, compute the amount to be included in 2017 net income and in 2017 other comprehensive related to Online’s investments. (4 points)

3. Compute the amount at which Quazno would be carried in the December 31, 2017 balance sheet. (2 points)

Check Figures: Net Income $287,524; Comprehensive Income ($1,435)

Answer 1

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