The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $570,000 at face value.

Sep. 1 Acquired $1,410,000 of American Instruments' 10% bonds at face value.

Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds.

Oct. 2 Sold the Distribution Transformers bonds for $625,000.

Nov. 1 Purchased $2,250,000 of M&D Corporation 6% bonds at face value.

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments.

The market prices of the investments are: American Instruments bonds $ 1,367,000 M&D Corporation bonds $ 2,327,000 (Hint: Interest must be accrued.)

Required:

1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.

2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Giles Manufacturing uses a periodic inventory system and has the following transactions for the month of June 2018:

Required:

1. Calculate ending inventory and cost of goods sold at June 30, 2018, using the specific identification method. The June 7 sale consists of beginning inventory, the June 15 sale consists of three units from beginning inventory and eight from the June 12 purchase, and the June 27 sale consists of one unit from beginning inventory and fourteen units from the June 24 purchase.



2. Using FIFO, calculate ending inventory and cost of goods sold at June 30, 2018.



3. Using LIFO, calculate ending inventory and cost of goods sold at June 30, 2018.



4. Using weighted-average cost, calculate ending inventory and cost of goods sold at June 30, 2018. (Do not round your intermediate calculations. Round your answers to the nearest dollar amount.)

Problem 12-7 Various transactions related to equity investments: fair value through net income [LO12-5]

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys equity securities as investments. None of Ornamental’s investments are large enough to exert significant influence on the investee. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

Mar. 31 Acquired Distribution Transformers Corporation common stock for $540,000.

Sep. 1 Acquired $1,110,000 of American Instruments' common stock.

Sep. 30 Received a $16,200 dividend on the Distribution Transformers common stock.

Oct. 2 Sold the Distribution Transformers common stock for $579,000.

Nov. 1 Purchased $1,560,000 of M&D Corporation common stock.

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments.

The market prices of the investments are: American Instruments common stock $ 1,046,000

M&D Corporation common stock $ 1,635,000

Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $440,000 at face value.

Sep. 1 Acquired $1,020,000 of American Instruments' 10% bonds at face value.

Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds.

Oct. 2 Sold the Distribution Transformers bonds for $485,000.

Nov. 1 Purchased $1,600,000 of M&D Corporation 6% bonds at face value.

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments.

The market prices of the investments are: American Instruments bonds $ 974,000

M&D Corporation bonds $ 1,664,000

(Hint: Interest must be accrued.)

Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Problem 12-13 Equity method [LO12-6, 12-7]

Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada. Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc., on January 2, 2018, for $580 million.

At the date of purchase, the book value of Vancouver's net assets was $865 million. The book values and fair values for all balance sheet items were the same except for inventory and plant facilities. The fair value exceeded book value by $5 million for the inventory and by $30 million for the plant facilities.

The estimated useful life of the plant facilities is 15 years. All inventory acquired was sold during 2018. Vancouver reported net income of $200 million for the year ended December 31, 2018. Vancouver paid a cash dividend of $40 million.

Required: 1. Prepare all appropriate journal entries related to the investment during 2018. 2. What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 2018? 3. What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $570,000 at face value. Sep. 1 Acquired $1,410,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $625,000. Nov. 1 Purchased $2,250,000 of M&D Corporation 6% bonds at face value. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments bonds $ 1,367,000 M&D Corporation bonds $ 2,327,000 (Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

On Jan 1, 2018, the North Sea Company purchased a highsea platform for $ 12,000,000 and paid $2,000,000 as a downpyament while the balance will be paid over the next 10 years in installments of $500,000 every six months , starting July 1, 2018. The market rate on Jan 1, 2018 was 6%.

Requirements:
a.   For the how much the North Sea Company should recognize the platform on Jan 1, 2018? Show your calculation.

b.   On Jan 1, 2025, the company will pay installment payment of $500,000. How much of this payment represents a payment of the principal and how much of it represents a payment of the interest? Show your calculation (fill in the following table Jan 1 2018 – Jan 2025).
Date   Cash Paid   Interest Exp.   P Payment   Carrying Value
1-Jan-18   $   -   $   -   $   -   $   ………….
1-Jul-18              
1-Jan-19              
1-Jul-19              
1-Jan-20              
1-Jul-20              
1-Jan-21              
1-Jul-21              
1-Jan-22              
1-Jul-22              
1-Jan-23              
1-Jul-23              
1-Jan-24              
1-Jul-24              
1-Jan-25              

c.   What is the total interest expense for the year ended on Dec 31, 2021?

d.   What will be the carrying value of the notes on Dec 31, 2024?

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. On June 30, 2018, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $18,000 on the purchase date and the balance in six annual installments of $6,000 on each June 30 beginning June 30, 2019. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?
2. Johnstone needs to accumulate sufficient funds to pay a $480,000 debt that comes due on December 31, 2023. The company will accumulate the funds by making five equal annual deposits to an account paying 5% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2018.
3. On January 1, 2018, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $128,000 beginning on January 1, 2018. A 10% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2018, before any lease payments are made?

On December 6, 2017, Norwood Co., an office equipment supplier, sold a copier for cash of $24,000 (cost $15,400) with a two-year parts and labour warranty. Based on prior experience, Norwood expects eventually to incur warranty costs equal to 5% of the selling price. The fiscal year coincides with the calendar year. On January 20, 2018, the customer returned the copier for repairs that were completed the same day. The cost of the repairs consisted of $406 for the materials taken from the parts inventory and $556 of labour that was fully paid with cash. These were the only repairs required in 2018 for this copier.  

Required:
1. How much warranty expense should the company report in 2017 for this copier?

2. How much is the warranty liability for this copier as of December 31, 2017?

  
3. How much warranty expense should the company report in 2018 for this copier?

  
4. How much is the warranty liability for this copier as of December 31, 2018?

  
5. Show the journal entries that would be made to record (a) the sale (assume a perpetual inventory system); (b) the adjustment on December 31, 2017, to record the warranty expense; and (c) the repairs that occurred in January 2018. Ignore sales taxes.

1

Record the cash sale of a copier.

2

Record the cost of the Dec. 6 sale.

3

Record the warranty expense for the copier sold in 2017.

4

Record the cost of warranty repairs.

Leases (Lessee and Lessor) Hayes Corp. is a manufacturer of truck trailers. On January 1, 2018, Hayes Corp. leases ten trailers to Lester Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

1.      The first payment of $100,146 is due on January 1, 2018, and each subsequent payment is made each year on December 31, starting December 31, 2018. The rate of return for Hayes is 8%. This is also the borrowing rate for Lester.

2.      Titles to the trailers pass to Lester at the end of the lease.

3.      The fair value of the trailers is $500,000. The cost of the trailers to Hayes Corp. is $450,000. The trailers have an expected useful life of nine years, with no salvage value.

4.      Collectibility of the lease payments is reasonably predictable and there are no important uncertainties surrounding the amount of costs yet to be incurred by Hayes Corp.

Instructions

1.      What specific type of lease is this for the lessor? For the lessee?

2.      Calculate the Present Value of the Minimum Lease Payments. Show your work and assumptions (type of PV and factors used).

3.      Prepare a lease amortization schedule for the lessor through 12/31/18.

4.      Prepare the journal entries for the lessor for 2018 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue.

5.      Prepare the journal entries for the lessee for 2018 to record the lease agreement, the payment of the lease rentals, including interest expense where appropriate, and depreciation (if applicable).