Reference no: EM135366

Powerpuff Corp. carries an account in its general ledger called investments, which contained the following debits for investment purchases and no credits. Feb. 1, 2012 Blossom Company common stock, $100 par, 200 shares $ 37,400 April 1 U.S. Government bonds, 11%, due April 1, 2012, interest payable April 1 and October 1, 100 bonds of $1,000 par each 100,000 July 1 Buttercup Company 12% bonds, par $50,000, dated March 1, 2012, purchased at par plus accrued interest, interest payable annually on March 1, due March 1, 2032 52,000

Q1. Assuming that all the investments are classified as available-for-sale, use the spreadsheet Journal Entries to prepare the journal entries necessary to classify the amounts into the proper accounts.

Q2. Prepare the entry to record the accrued interest on December 31, 2012.

Q3.The fair values of the investments on December 31, 2012, were: •Blossom Company common stock $ 33,800 (1% interest) •U.S. Government bonds 124,700

•Buttercup Company bonds 58,600 Use the spreadsheet Available for Sale to prepare a schedule indicating any fair value adjustment needed at December 31, 2012.

Q4. Now assume Powerpuff's investment in Blossom Company represents 30% of Blossom's shares. In 2012, Blossom declared and paid dividends of $9,000 (on September 30) and reported net income of $30,000. Prepare a brief memorandum explaining how the accounting for the Blossom investment will change, and discuss the impact on the financial statements of Powerpuff Corp.