Question

Robby Robots has decided to invest its excess cash in the following investments: Jan. 10 Feb. 13 Mar. 1 Mar. 1 Purchased 8,000 shares of Lion Country Safari for $3.25 per share. Robby Robots does not have significant influence over Lion Country Safari. Purchased 33% of the stock of Birdie Hats consisting of 33,000 shares of stock (out of 100,000 shares) for $5 per share Robby Robots does have significant influence over Birdie Hats. Purchased a semiannual bond from the City of Ocala with a face value of $80,000 which pays 6.4% APR (Next interest payment is August 1). Robby Robots intends to hold the bond to maturity. Purchased a semiannual bond from Camelot Canoes with a face value of $50,000 which pay 7.5% APR. (Next interest payment is August 1). Robby Robots classifies these bonds as trading investments. Purchased a semiannual bond from the U.S. treasury with a face value of $10,000 which pays 5.0% APR (Next interest payment is August 1). Robby Robots classifies this bond as available for sale. Birdie Hats pays a dividend of $1.25 per share. Lion Country Safari pays a dividend of 0.25 per share. Birdie Hats pays a dividend of $1.35 per share. Mar. 1 June 1 Nov. 1 Dec. 1 At year's end, the investments are worth: Lion Country Safari, S3.50 per share, reporting net income of $2,500,000. Birdie Hats, $5.10 per share, reporting net income of $1,000,000. City of Ocala Bond is worth $81,500. Camelot Canoes is worth $48,000. U.S. Treasury bond is worth $11,000 1. Journalize all transactions relating to these investments including purchase, dividend payouts, interest payouts, adjustment to value (at Dec. 31). 2. Determine the effect on Robby Robot's net income for the year of each of the investments Lion Country Safari Date Account Dr Cr

Answer 1

Robby Roborts
Q1
Journal Entries
Date	Particulars	Debit	Credit
Jan. 10	Investment in shares of Lion Country Safari A/c___________Dr.	26,000.00
	To Bank A/c		26,000.00
	(Being Investment made in shares)
Feb.13	Investment in shares of Bardie Hats A/c___________Dr.	165,000.00
	To Bank A/c		165,000.00
	(Being Investment made in 33,000 shares to get significant influence in the Bardie Hats)
Mar.1	Investment in 6.40% bonds of City of Ocala A/c____________Dr.	80,000.00
	To Bank A/c		80,000.00
	(Being Investment made in semiannual bonds)
Mar.1	Investment in 7.50% bonds of Comelot Canoes A/c_________Dr.	50,000.00
	To Bank A/c		50,000.00
	(Being Investment made in semiannual bonds)
Mar.1	Investment in 5.00% U.S. treasury A/c____________________Dr.	10,000.00
	To Bank A/c		10,000.00
	(Being Investment made in semiannual treasury)
Jun.1	Bank A/c______________________________________________Dr.	41,250.00
	To Dividend Income		41,250.00
	(Being dividend received @ $1.25/share from Bardie Hats on 33000 shares)
Aug.1	Bank A/c______________________________________________Dr.	4,685.00
	To Interest on bonds of City Ocala A/c		2,560.00
	To Interest on bonds of Comelot Canes A/c		1,875.00
	To Interest on US treasury A/c		250.00
	(Being Interest received on semi annual interest paying securities) Calculations: City Ocala = 80000*6.4%*0.5 Comelet Canes = 50000*7.5%*0.5 US Treasury = 10000*5%*0.5
Nov.1	Bank A/c______________________________________________Dr.	2,000.00
	To Dividend Income A/c		2,000.00
	(Being dividend income received from Lion Country Safari @ 0.25/share on 8000 shares)
Dec.1	Bank A/c______________________________________________Dr.	44,550.00
	To Dividend Income A/c		44,550.00
	(Being dividend received @ $1.35/share from Bardie Hats on 33000 shares)
Dec.31	Investment in shares of Lion Country Safari A/c___________Dr.	2,000.00
	To Gain in valuation of Investment A/c		2,000.00
	(Being gain in the value of investment of 8000 shares from 3.25/share to 3.50/share, no adjustment required for profit as the interest is non significant)
Dec.31	Investment in Shares of Bardie Hats A/c_________________Dr.	333,300.00
	To Gain in valuation of Investment A/c		333,300
	(Being increase in value of investment - 3300 and porportionate profit accounted -330000, as the interest is significant interest)
Dec.31	Change in value of bonds of City of Ocala	-
	(No entry required as bonds are held for maturity and they will be shown at cost always)		-
Dec.31	Loss in value of bond A/c_____________________________ Dr.	2,000.00
	To Investment in 7.50% bonds of Comelot Canoes A/c		2,000.00
	(Being assets held for trading hence marked to market adjustment made)
Dec.31	Change in value of Investment in 5.00% U.S. treasury	-
	(No entry required as the investments are available for sale and therefore, upward revision in price shall not be recognized.)		-
Q2	Effect on Net Income
Lion Country Safari
Date	Particulars	Debit	Credit
Nov.1	Dividend Income		2,000.00
Dec.31	Change in Fair Value		2,000.00
	Total		4,000.00
Birdie Hats
Date	Particulars	Debit	Credit
Jun.1	Dividend Income		41,250.00
Dec.1	Dividend Income		44,550.00
Dec.31	Change in Fair Value		3,300.00
Dec.31	Proportionate Profit Accounted		330,000.00
	Total		419,100.00
City of Ocala Bonds
Date	Particulars	Debit	Credit
Aug.1	Interest Income		2,560.00
	Total		2,560.00
Comelot Coneos
Date	Particulars	Debit	Credit
Aug.1	Interest Income		1,875.00
Dec.31	Loss in value of Bonds	2,000.00
	Total	2,000.00	1,875.00
	Net	125.00