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ACY4001 Advanced Accounting ǀ

2019-20 Semester 2

Individual Assignment

Chapter 17 Investment

IA17.1 Cardinal Paz Corp. carries an account in its general ledger called Investments,
which contained debits for investment purchases, and no credits, with the following
descriptions.

Sharapova Company ordinary shares, $100 par, 200


Feb. 1, 2019 $ 37,400
shares
Government bonds, 11%, due April 1, 2025, interest
April 1 payable April 1 and October 1, 110 bonds of $1,000 par 110,000
each

McGrath Company 12% bonds, par $50,000, dated March


July 1 1, 2019 purchased at 104, plus accrued interest payable 54,000
annually on March 1, due March 1, 2039

Instructions

(Round all computations to the nearest dollar.)

a. Prepare entries necessary to classify the amounts into proper accounts, assuming
that Paz plans to actively manage these investments.

b. Prepare the entry to record the accrued interest on December 31, 2019.

c. The fair values of the investments on December 31, 2019, were:

Sharapova Company shares $ 31,800


Government bonds 124,700
McGrath Company bonds 58,600

What entry or entries, if any, would you recommend be made?

d. The government bonds were sold on July 1, 2020, for $119,200 plus accrued
interest. Give the proper entry.
IA17.2 The treasurer of Miller AG has read on the Internet that the price of Wade Inc.
ordinary shares is about to take off. In order to profit from this potential development,
Miller purchased a call option on Wade shares on July 7, 2019, for €240. The call option
is for 200 shares (notional value), and the strike price is €70. (The market price of a Wade
share on that date is €70.) The option expires on January 31, 2020. The following data
are available with respect to the call option.

Market Price of Wade Time Value of


Date
Shares Call Option

September 30, 2019 €77 per share €180


December 31, 2019 65 per share 65
January 4, 2020 72 per share 30

Instructions

Prepare the journal entries for Miller for the following dates.

a. July 7, 2019—Investment in call option on Wade shares.

b. September 30, 2019—Miller prepares financial statements.

c. December 31, 2019—Miller prepares financial statements.

d. January 4, 2020—Miller settles the call option on the Wade shares.