A partial list of investment activities for Honda Inc during YR01 and YR02 appears below Date Event Sept 1, YR01 Purchased $2,000 of bonds issued by Target Inc The bonds were purchased at 104 and Honda also paid a broker's fee of $60 These bonds have a coupon rate of 6 and pay interest once each year, on February 1 st The bonds are dated February 1, YR01, and mature on February 1, YR06 (five year term) At present Hondadoes not have a definite plan for this investment beyond earning interest income At the purchase date these bondshave an effective yield to maturity of 4 2 Oct 1, YR01 Purchased 20 common shares of Nissan Co stock Paid $10 per share and a broker's fee of $4 This purchase does not giveHonda the ability to control or influence the operating activities of Nissan Co Dec 10, YR01 Receiveda total of $6 in cash dividends related to the investment in Nissan Co common stock Dec 31, YR01 Honda made all necessary adjusting journal entries related to the investment in Target bonds On this date, the bonds issued by Target were selling for 106 The relevant valuation account had an unadjusted general ledger balance of $10 dr Honda made all necessary adjusting journal entries related to the investment in Nissan stock On this date,the relevant valuation account had an unadjusted generalledger balance of $6 cr Nissan reported earnings of $1,000 for YR01 and its common stock closed at $9 per common share Nissan has no preferred stock outstanding Feb 1, YR02 Receivedinterest on the Target Inc bonds March 1, YR02 On this dateHonda sold 10 shares of Nissan stock for $12 per share and paid a broker's feeof $5 April 1, YR02 Purchased 120 common shares of Ford Co common stock Paid $20 per share and a broker's fee of $60 Ford Co currently has 400 common shares outstanding, and this purchase gives Honda the ability to influence the operating activities of Ford Co At the purchase date, the book value per common share for FordCo is $14 50 The difference between price paid and book value per commonshare for the Ford Co stock is related to the following (1) 50 of the difference relates to equipment with a remaining life of 5 years, (2) 25 relates to land, and (3) 25 relates to internally developed goodwill Sept 30, YR02 On this date executives of Honda reviewed their investment holdings and decided the investment in bonds issued by Target should be reclassified as a held to maturity investment Honda has the financial ability and intent to hold thebonds until theymature on February 1, YR06 At this date,the bonds were selling for 102 Oct 1, YR02 Received$20 in cashdividends related to the investment in Ford Co common stock Dec 31, YR02 Honda made all necessary adjusting journal entries related to the investments in Nissan stock and Ford stock On this date,the relevant valuation account had an unadjusted general ledger balance of $20 cr Nissan reported earnings of $2,000 for YR02 and its common stock closed at $20 per common share Nissan has no preferred stockissue or outstanding Ford Co reported net income of $600 and the stock price closed at $14 per common share Ford has 50 shares of 4 preferred stock outstanding The preferred was issued on January 1, YR01, is cumulative, and has a $100 par Ford had not declared or paid any preferred dividends since the preferred stock was issued Note At 12 31 YR02, Hondawould make adjusting entries related to its investment in bonds issued by Target However, this examination question does not requirethese adjusting journal entries and yoursolution should not provide these journal entries REQUIRED Prepare formal journal entries to record these events and any necessary AJEs in YR01 and YR02 Calculate JE to the nearest dollar Relevant company accounting policies are as follows The company's reporting period is January 1 st to December 31 st For bond investments, discount or premium is amortized using the effective interest method Adjusting journal entries are made once each year at year end (December 31 st )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 27, 2024

A partial list of investment activities for Honda Inc. during YR01 and YR02 appears below. Date Event Sept. 1, YR01 Purchased $2,000 of bonds issued

A partial list of investment activities for Honda Inc. during YR01 and YR02 appears below.

Date	Event

Sept. 1, YR01	Purchased $2,000 of bonds issued by Target Inc. The bonds were purchased at 104 and Honda also paid a broker's fee of $60. These bonds have a coupon rate of 6% and pay interest once each year, on February 1^st. The bonds are dated February 1, YR01, and mature on February 1, YR06 (five-year term). At present Hondadoes not have a definite plan for this investment beyond earning interest income. At the purchase date these bondshave an effective yield to maturity of 4.2%.

Oct. 1, YR01	Purchased 20 common shares of Nissan Co. stock. Paid $10 per share and a broker's fee of $4. This purchase does not giveHonda the ability to control or influence the operating activities of Nissan Co.

Dec. 10, YR01	Receiveda total of $6 in cash dividends related to the investment in Nissan Co. common stock.

Dec. 31, YR01	Honda made all necessary adjusting journal entries related to the investment in Target bonds. On this date, the bonds issued by Target were selling for 106. The relevant valuation account had an unadjusted general ledger balance of $10 dr. Honda made all necessary adjusting journal entries related to the investment in Nissan stock. On this date,the relevant valuation account had an unadjusted generalledger balance of $6 cr. Nissan reported earnings of $1,000 for YR01 and its common stock closed at $9 per common share. Nissan has no preferred stock outstanding.

Feb. 1, YR02	Receivedinterest on the Target Inc. bonds.

March 1, YR02	On this dateHonda sold 10 shares of Nissan stock for $12 per share and paid a broker's feeof $5.

April 1, YR02	Purchased 120 common shares of Ford Co. common stock. Paid $20 per share and a broker's fee of $60. Ford Co. currently has 400 common shares outstanding, and this purchase gives Honda the ability to influence the operating activities of Ford Co. At the purchase date, the book value per common share for FordCo. is $14.50. The difference between price paid and book value per commonshare for the Ford Co. stock is related to the following: (1) 50% of the difference relates to equipment with a remaining life of 5 years, (2) 25% relates to land, and (3) 25% relates to internally developed goodwill.

Sept. 30, YR02	On this date executives of Honda reviewed their investment holdings and decided the investment in bonds issued by Target should be reclassified as a held-to-maturity investment. Honda has the financial ability and intent to hold thebonds until theymature on February 1, YR06. At this date,the bonds were selling for 102.

Oct. 1, YR02	Received$20 in cashdividends related to the investment in Ford Co. common stock.

Dec. 31, YR02	Honda made all necessary adjusting journal entries related to the investments in Nissan stock and Ford stock. On this date,the relevant valuation account had an unadjusted general ledger balance of $20 cr. Nissan reported earnings of $2,000 for YR02 and its common stock closed at $20 per common share. Nissan has no preferred stockissue or outstanding. Ford Co. reported net income of $600 and the stock price closed at $14 per common share. Ford has 50 shares of 4% preferred stock outstanding. The preferred was issued on January 1, YR01, is cumulative, and has a $100 par. Ford had not declared or paid any preferred dividends since the preferred stock was issued. Note: At 12/31/YR02, Hondawould make adjusting entries related to its investment in bonds issued by Target. However, this examination question does not requirethese adjusting journal entries and yoursolution should not provide these journal entries.

REQUIRED:

Prepare formal journal entries to record these events and any necessary AJEs in YR01 and YR02. Calculate JE to the nearest dollar.

Relevant company accounting policies are as follows:

The company's reporting period is January 1^st to December 31^st.
For bond investments, discount or premium is amortized using the effective interest method.
Adjusting journal entries are made once each year at year-end (December 31^st).