Reference no: EM132461098
Bitnec Corporation acquired three separate investments at the beginning of the year. Information about each acquisition, the dividends/interest received during the year, income, and year-end stock/debt price, follows:
INITIAL INVESTMENT
- Purchased 50,000 shares of Lynch Corporation at $11 per share. This investment was made with the intent of near-term trading profits. Lynch Corporation has 5,000,000 shares outstanding.
- Purchased $200,000 of Graham Corporation debt for $200,000. This investment was generally considered to be long-term with no particular plans for near-term trading, although it is unlikely Bitnec will hold the investment until maturity.
- Purchased 40% of the shares of Buffet Corporation at $30 per share. This investment was generally considered to be long-term with plans to exert significant influence. Buffet Corporation has 1,500,000 shares outstanding.
DIVIDENDS/INTEREST
- Lynch Corporation declared and paid dividends of $0.50 per share.
- Graham Corporation paid interest on outstanding debt, including $10,000 to Bitnec.
- Buffet Corporation declared and paid dividends of $0.25 per share.
NET INCOME
- Lynch Corporation reported net income of $4,000,000 for the year.
- Graham Corporation reported net income of $7,000,000 for the year.
- Buffet Corporation reported net income of $1,200,000 for the year.
YEAR END VALUES
- Lynch Corporation's closing stock price at the end of the year was $13 per share.
- Due to deteriorating finances, the value of Graham's debt held by Bitnec plunged to $150,000.
- Buffet Corporation's closing stock price at the end of the year was $33 per share.
Problem (a) Prepare journal entries, as necessary, to account for the initial investment, dividend, and year-end stock price for the investment in Lynch Corporation.
Problem (b) Prepare journal entries, as necessary, to account for the initial investment, interest and year-end debt value for the investment in Graham Corporation securities.
Problem (c) Prepare journal entries, as necessary, to account for the initial investment, dividend and year-end stock price for the investment in Buffet Corporation.