Reference no: EM132638524
Problem - Long term Investment
The information below relates to Wynn Corporation's investments classified as available-for-sale securities in 2017 and:
1/1/17 Purchased $100,000 par value of Barr Company bonds at 97 with an annual yield of 10%. The bonds pay interest annually on 12/31. The annual interest rate is 9%.
9/5/17 Purchased 3,200 shares of Pine, Inc. common stock for $25 per share.
12/31/17 Received $9,000 interest for investment in Barr Company bonds for 2017 (note: the discount should be amortized using the effective interest method when recording the receipt of the interest).
12/31/17 The market prices of the investments at 12/31/2017 were: Pine Inc. common stock $23 per share; and Barr company bonds, 99. Make the appropriate entries to apply the fair market valuation for these investments.
7/2/18 Wynn sold half of Pine, Inc. common stock for $36,160.
Required -
a. Prepare journal entries for the transactions occurred in 2017 (i.e., transactions on 1/1, 9/5 and 12/31), make the appropriate entries to apply the fair market valuation for these investments on 12/31/2017 and record the transaction of 7/2/2018.
b. If the management elected the fair value option for these investments, what would be the value of investments in Pine and Barr reported in 12/31/2017 balance sheet?
c. Under the fair value option, on what statement would the unrealized gain/loss be reported?
d. If the management reported the investment in Barr as held-to-maturity securities without electing the fair value option, what would be the value of investment in Barr reported in 12/31/2017 balance sheet (i.e., the amortized cost of Barr on 12/31/2017)?
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