At the end of 2020, Ace Company had the following portfolio of investments in common stock, which it expected to hold for more than one year:
Security Cost Fair Value
A $20,000 $25,000
B 30,000 29,000
Totals $50,000 $54,000
During 2021, the following transactions occurred:
May 1 Purchased C common stock for $15,000
July 18 Sold all the A stock for $23,000
December 31 The following information was available:
Security Cost Fair Value
B $30,000 $32,000
C 15,000 15,500
Totals $45,000 $47,500
(1) Prepare the journal entries to be made on May 1, July 18, and December 31 of 2021.
(2) Indicate what, if anything, would be reported with respect to these investments on Ace’s income statement and balance sheet. Please be specific about the sections of the statements in which the amounts would be reported. You may prepare partial statements to complete this requirement.
On December 31, 2020, Gibbs Co. acquired bonds issued by Walden Co. for $112,290. They have a face amount of $100,000, pay 12% interest, and were purchased to yield 10%. The maturity date is December 31, 2030, and interest is due every December 31. The fair value of the bonds on December 31, 2021, is $108,500.
(1) Complete the amortization schedule through the first interest payment on December 31, 2021.
(2) Prepare the journal entry(ies) that Gibbs would make on December 31, 2021, assuming the company will sell the bonds if it needs cash at any time before December 31, 2030.
(3) Indicate what, if anything, would be reported with respect to these bonds on Gibbs’: (a) income statement; (b) statement of comprehensive income; and (3) balance sheet. Please be specific about the sections of the statements in which the amounts would be reported. You may prepare partial statements to complete this requirement.
Adcock Corp. had $500,000 net income in 2020. For all of 2020, there were 200,000 shares of Adcock’s common stock outstanding. There were also 30,000 options outstanding all year. Each option allowed the holder to buy one share of common stock at $40 a share. The market price of the common stock averaged $50 during 2020. The tax rate is 30%.
During all of 2020, there were 40,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend, and is convertible into 3 shares of common stock. Finally, Adcock had $2,000,000 of 7% convertible bonds (issued at face value) outstanding for all of 2020. Each $1,000 bond is convertible into 30 shares of common stock.
(1) Calculate Adcock’s basic earnings per share for 2020.
(2) Calculate the incremental per share effect of each potentially dilutive security. Note that you are not to rank the results from smallest to largest earnings effect per share nor are you to recompute earnings per share for each of these potentially dilutive securities to determine if they are dilutive or anti-dilutive.
Curtis Co. entered into a long-term contract in 2020. The contract price was $2,250,000. The following data pertain to the first two years that the contract was in process.
Costs incurred to date $ 570,000 $1,557,500
Estimated costs to complete as of 12/31 1,330,000 667,500
Billings to date 650,000 1,250,000
Cash collections to date 600,000 1,150,000
(1) Using the percentage-of-completion method:
(A) Compute gross profit to be reported in each year.
(B) Prepare the necessary journal entries with respect to this contract for the year 2020 only.
(C) Show how the inventory and billings accounts related to this contract would be reported on Curtis’s balance sheet as of December 31, 2020.
(2) Show how the inventory and billings accounts related to this contract would be reported on Curtis’s balance sheet as of December 31, 2020, if Curtis used the completed-contract method of accounting for this contract.
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