NOTlal NO Spa.. Hed Paragraph Styles Ch. 12 On January 3, 2020 Fairborn Company paid $285 million for 15 million shares of Beavercreek, Inc.'s common stock. The investment represents a 30 % interest in the net assets of Beavercreek and Fairborn had the ability to exercise significant influence over Beavercreek's operations. At the time, the book value of Beavercreek's net assets was $609 million and the fair value of the company's depreciable assets exceeded their book value by $80 million. The depreciable assets had an average remaining useful life of 10 years. Beavercreek reported net income of $190 million and paid out $1.50 per share in cash dividends for the year ended December 31, 2020. Beavercreek's common shares were trading at $24 at the end of 2020. 1. Assuming that Fairborn accounts for its investment in Beavercreek by the equity method of accounting, show Fairborn's journal entry to record the purchase of Beavercreek's stock. 2. Show all other journal entries that Fairborn will make during 2020 related to this investment. Fairborn sold its Beavercreek stock in early January of 2021, at $28 per share. Show the journal entry 3. Fairborn would make to record the sale Assume instead that the companies signed a contract that severely limited Fairborn's ability to influence Beavercreek's operations, and Fairborn's management determined that the equity method of accounting was not appropriate for its investment in Beavercreek. Show the journal entries that Fairborn would make during 2020 to account for this investment. Show the journal entry that Fairborn would make to record the sale of the Beavercreek stock in 2021. 4. 5. Ch. 14 Raider Corporation issued 15-year, 7 % convertible bonds with a face value of $75,000,000 on February 1, 2019. The market interest rate for bonds of similar risk and structure was 8 %. The bonds pay interest semiannually on January 31 and July 31. At the time of the bond issue Raider's common stock was trading at $31 per share. There was no beneficial conversion feature (i.e., the fair value of the stock did not exceed the face value of the debt issued). 1. Show Raider's journal entry for the bond issue. 2. Show the journal entry for the first interest payment. 3. Show the adjusting entry at December 31, 2019. 4. Show the journal entry for the second interest payment. Ch. 14, continued 5. Investors exercised the conversion option on 25 % of the bonds several years later. The stock was trading at $42 per share at the time of the conversion and the remaining bond discount was $400,000. Raider uses the book value method to record stock conversions. Show Raider's journal entry. 6. Instead of convertible bonds, suppose that Raider had issued bonds with 10 detachable warrants at 107. Each warrant entitled the bondholder to purchase 5 shares of Raider's common stock at $40 per share. Each warrant had a market value of $9 at the time of the issue. Show the journal entry Raider would make for the issuance of the bonds. 7. Rowdy Company issued 10-year, 7 % bonds with a face value of $1,000,000 at a discount. The bonds were not convertible, nor were there any warrants attached. Rowdy Company called the bonds at 103 several years later, when the remaining discount was $400,000. Show the journal entry Rowdy's accountant made to reflect calling the bonds
