Question

e 9 90% 3:38 pm Q2. a) Microsoft owns equity-method investments in several companies. Suppose Microsoft paid $1,000,000 to acquire a 25% investment in Sun - Software Company. Sun Software reported net income of $640,000 for the first year and declared and paid cash dividends of $420,000. 1) Record the following in Microsoft's journal: (a) Purchase of the investment, (b) Microsoft's proportion of Sun Software's net income (c) Receipt of the cash dividends. # What is the ending balance in Microsoft's investment account? YORKVILLE WWW.YORVILLE b) You are required to identify whether the following bonds will be issued at face value, a premium, or a discount: The market interest rate is 9% Moonlight Inc. issues bonds with a stated rate of 8.5% ii. Skyrocket Corporation issued 7.5% bonds when the market rate was 7.5%. IlI. XSpace Corporation issued 8% bonds when the market interest rate was 6.75% iv. TV Company issued bands that pay cash interest at the stated interest rate of 7%. At the date of issuance, the market interest rate was 8.25% L + 7

Answer 1

Q 210) 16 Recording Journal Entry in Microsoft doumal (a) Purchase of the investment Event Credit General Journal Debit în vestment in Sun-Software Company $1000000 a. $1000000 Microsoft's proportion of b Cash (to record investment made in Sun-Sof to) | 1b) Sun software' net income I Event Greneu al Toumal Debit Credit bi Investment in Sunn software company $160000 Investment Revenue $160000 (To record Net Income (C) Receipt of the cash dividends Event Geneual Journal Debit Credit Cash $105000 Investment in Sun - Software Company $105000 To record cash dividend from Sun-software Hecve) 1 company

Ending balance in Miemsoft investment alcun) (4 1055000 * Working note Equity method of investment : in The method applied interest Company acquired ownenship company for 200 20% to 50% of stock. in Equity when a anothen which made investment is known as investorlinwestling and to whom in which investment is made is known The Company Company as investee Company in this case , Hico soft made investment. So, Hierosoft becomes investory investing company and Sun. Softonte compory is in vestee's company. an investment is initially recognised at cost and is they thereaften adjusted for investee net income lots and Cash dividend Paidh. Under Equity method ز) 1 Hivcosoft proportion of Sun Software's. $640000 25.1. Net Income = $160000 (10) Micuosoft for receipt of Cash = $420000 x 25.1. = $10 5000 dividends presno in cu eases eiv) Net Income of the investee Company the investor's value on its balance sheet , while the investee's loss and dividend Paid decreases it. Ending balance in Hiwosoft Investment al count; Amo unt paid for purchase of Innvestment $160000 Add: Microsoft Ro portion of Sun Softcore company ($105000) Cash dividend received $ 1055000 $1000000 ii) ( Refer no te lii)) lese:

Since, Mauret interest rate is g./. and stated rate is 8.51. since, Mayleet in teuest rate and bend Coupoun rate both are 2.06) The bond is in sued at discount Explanatio : When the market rate of interest is groter than bond Stated rute (Coupoun rate), the bend is of discount. Mauleet in tevest rate is higher. Mence, Bond is al discount. Exploration. When the market rate of interest is equal to wate/coupoun rate, the band is at Face value - Bond is at face value . The Bond is issued at face value. PAROH stated 7.5% The Bond is issued at Premium. Explanation: When the manket rate of in tevent is lower than Couporn rate of the bond then the bond is issued at Premium. since, Mauket interest rate is 6. 76). and Coupoun rate is 8%. Hauket interest rate is lower. Hence, Bond is at Premium. The Bond is issued at discount. Explanation : When the market rate of interest graten than bond Stuted rate, the Bond is at discount intewest does not affect bond classification as a face value, diswunt or Premium. Mauleet in teuest rate is 8.25% and stated rate is 7%. Moule et in tewest rate is higher. Hence, Bind is at discount. Paying cash * Coupour rate A cou poun rate indicates the amount of annual in tevest Company way to Bond holder's from issue to until Bond matures.