Question

Looney Tuning Company started an extensive investment portfolio in 2015 and purchased the following investments in 2015:

Daffy’s Gag Gifts Corp – on January 1, 2015, purchased 20,000 shares of stock.  The cost of the shares was $25 per share and a commission of $750 was paid at purchase.

W.E. Coyote’s Acme Products Corp. – on January 1, 2015, bonds with a face value of $250,000 purchased for $231,403. (This is “Bond 1” from Assignment #1).

P. LePew’s Cologne Company – on March 1, 2015, bonds with a face value of $350,000 purchased at par.  The coupon rate is 6% paid semi-annually (i.e. 3% every March 1 and September 1)

Porky’s Pig Roast Inc. – on May 1, 2015, purchased bonds with face value of $200,000 for $211,296. (This is bond “2” from Assignment #1 where you prepared an amortization table).

Bugs’ Carrot Juice, Inc. – on June 30, 2015, purchased 10,000 shares of stock. The cost of the shares was $40 per share and $1,400 of commission was paid at purchase.

Yosemite Sam’s Slim Jeans Company – on September 1, 2015, purchased 5,000 shares of stock.  The cost of the shares was $75 per share and $900 of commission was paid at purchase.

On July 31, 2015, Looney received the following dividends that were declared in 2015:

Bugs Carrot Juice paid $1 per share

Daffy’s Gag Gifts paid $0.30 per share

The company accounted for these investments as follows:

Held to maturity – Porky bonds

Trading securities – Coyote bonds and Bugs’ stock

Securities available for sale – LePew bonds and Yosemite stock

Equity method – Daffy’s stock (Daffy’s Gag Gifts Corp has a total of 80,000 shares outstanding).

Information at 12/31/15 includes the following:

Porky bonds – fair value of $420,000

Coyote bonds – fair value of $99,000

LePew bonds – fair value of $375,000

Bugs’ stock – share price of $42 per share

Yosemite stock – share price of $67 per share

Daffy stock – share price of $36 per share.  Company net income for 2015 was $100,000.

Required for 2015:

Prepare a summary table for trading securities showing cost, fair value, and unrealized gain/loss at December 31, 2015.

Prepare a summary table for securities available for sale showing cost, fair value, and unrealized gain/loss at December 31, 2015.

Prepare ALL required journal entries for these investments in 2015.

Determine the amounts that Looney Tuning Company would report on its 12/31/15 balance sheet for HTM investments, TS investments, SAS investments, and equity investments.

Assume 2015 operating income for Looney Tuning Company is $300,000. For simplicity, assume there are no income taxes.  Complete the following table.

    Operating income            300,000

    Other income and expenses:

        Interest income        __________

        Dividend income        __________

        Holding gain/loss        __________

        Investment income (equity investments)        __________

        Total other income and expenses            __________

    Net income            __________

    Other comprehensive income            __________

    Comprehensive income            __________

What would be reported for accumulated other comprehensive income (AOCI) on the 12/31/15 balance sheet?

2016 Activity:

Sold Coyote bonds for $96,000 on January 15, 2016.

Sold Yosemite stock for $71 per share plus $1,200 commission on February 1, 2016.

Purchased 15,000 shares of Leghorn Hen Houses, Inc. for $12 per share and $600 commission on February 1, 2015.  The company accounts for this investment as a trading security.

Bugs and Daffy declared and paid the same dividends that were declared and paid in 2015.

Information at 12/31/16 includes the following:

Porky bonds – fair value of $418,000

LePew bonds – fair value of $371,000

Bugs’ stock – share price of $38 per share

Daffy stock – share price of $44 per share.  Company net income for 2016 was $120,000.

Leghorn stock – share price of $14 per share

Required for 2016:

    Repeat all the requirements above for 2015, using the information for 2016.

   

Answer 1

For 2015

A. Summary for Trading Securities :

Sr. NO.	Particulars	Invesment	Cost ($)	Fair Value($)	Unrealized Gain / (Loss) ($)
1	W.E. Coyote’s Acme Products Corp	Bonds	231403	99000	(132403)
2	Bugs’ Carrot Juice, Inc.	Shares	(10,000*40)+1400 = 401400	10,000*42 = 420,000	18600

B. Summary for Securities held for Sale :

Sr. NO.	Particulars	Investment	Cost ($)	Fair Value($)	Unrealized Gain / (Loss) ($)
1	P. LePew’s Cologne Company	Bonds	350,000	375,000	25,000
2	Yosemite Sam’s Slim Jeans Company	Shares	(5000*75)+900 = 375,900	5000*67 = 335,000	(40,900)

C Journal Entries :

Date (DD/MM/YY)	Particulars	Debit ($)	Credit ($)
1/1/2015	Investment in Daffy stock	500,000
	To Bank		500,000
	(being Investment made for 20,000 shares at $ 25 per share)
1/1/2015	Investment in Daffy stock	750
	To Bank		750
	(Being commission paid for investment)
1/1/2015	Investment in Coyote bonds	231403
	To Bank		231403
	(being bonds purchased)
1/3/2015	Investment in LePew bonds	350,000
	To Bank		350,000
	(Being investment made at par)
1/3/2015	Bank	10,500
	To Interest Income from Investment in LePew bonds		10,500
	(being interest received from bonds)
1/5/2015	Investment in Porky bonds	211,296
	To Bank		211,296
	(Being Investment made)
30/6/2015	Investment in Bugs’ stock	401,400
	To Bank		401,400
	(Being Investment made for 10,000 shares at $ 40 per share & Commission paid at the time purchase)
31/7/2015	Bank	6000
	To Investment in Daffy stock		6000
	(being pre-acquisition dividend at rate $ 0.3 per share * 20,000 shares)
31/7/2015	Bank	10,000
	To Investment in Bugs’ stock		10,000
	(being pre-acquisition dividend at rate $ 1 per share * 10,000 shares)
1/9/2015	Bank	10,500
	To Interest Income from Investment in LePew bonds		10,500
	(being interest received from bonds)
1/9/2015	Investment in Yosemite stock	375,900
	To Bank		375,900
	(Being investment made)