Category Archives: ACCT 551 (updated)

ACCT 551 Week 7 Homework E17-7, E17-9, E17-15 updated

ACCT 551 Week 7 Homework E17-7, E17-9, E17-15 updated

E17-7 (Trading Securities Entries) On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.

E17-9 (Available-for-Sale Securities Entries and Financial Statement Presentation) At December 31, 2013, the available-for-sale equity portfolio for Steffi Graf, Inc. is as follows.

E17-15 (Equity Investments—Trading) Kenseth Company has the following securities in its trading port- folio of securities on December 31, 2013.

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ACCT 551 Week 6 Homework E16-6, E16-7, E16-12, E16-22 updated

ACCT 551 Week 6 Homework E16-6, E16-7, E16-12, E16-22 updated

E16-6 (Conversion of Bonds)

On January 1, 2014, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2015.
E16-7 (Issuance of Bonds with Warrants)

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

E16-12

(Issuance, Exercise, and Termination of Stock Options)
On January 1, 2013, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2015, if the grantee is still employed by the company at the time of the exercise. On the grant date, Nichols’ stock was trading at $25 per share, and a fair value option-pricing model determines total compensation to be $400,000.

E16-22(EPS with Convertible Bonds, Various Situations)

In 2013, Chirac Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2014. (Assume that the tax rate is 40%.) Throughout 2014, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed.

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ACCT 551 Week 5 Homework E15-15, E15-16 updated

ACCT 551 Week 5 Homework E15-15, E15-16 updated

E15-15 (Dividend Entries) The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2013.
(a) A 5% stock dividend is declared and distributed at a time when the market price per share is $39.
(b) The par value of the common stock is reduced to $2 with a 5-for-1 stock split.
E15-16 (Computation of Retained Earnings) The following information has been taken from the ledger accounts of Isaac Stern Corporation.

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ACCT 551 Week 4 Homework E15-2, E15-5, E15-6 updated

ACCT 551 Week 4 Homework E15-2, E15-5, E15-6 updated

EXERCISE 15-2
Facts: Kathleen Battle Corporation was organized on January 1, 2014. It is authorized to issue 10,000 shares of 8%, $100 par value preferred stock, and 500,000 shares of no-par common stock with a stated value of $1 per share. The following transactions were completed during the first year. Prepare entries to record the transactions.

E15-5 (Lump-Sum Sales of Stock with Preferred Stock) Dave Matthew Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $100,000.

EXERCISE 15-6 (15th edition)
Facts: Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value C/S. During 2014, Lindsey Hunter took part in the following selected transactions.
1. Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock is actively traded on a national exchange at approximately $46 per share on the date of issuance.
2. Issued 1,000 shares of stock for land appraised at $50,000. The stock is actively traded on a national exchange at approximately $46 per share on the date of issuance. 

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ACCT 551 Week 3 Homework P14-5, P14-6, P14-7 updated

ACCT 551 Week 3 Homework P14-5, P14-6, P14-7 updated

P14-5 (Comprehensive Bond Problem) In each of the following independent cases the company closes its books on December 31.

P14-6 (Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are

P14-7 (Entries for Life Cycle of Bonds) On April 1, 2014, Seminole Company sold 15,000 of its 11% 15-year, $1,000 face value bonds at 97. 

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ACCT 551 Week 2 Homework E13-11, E13-12, P13-9 updated

ACCT 551 Week 2 Homework E13-11, E13-12, P13-9 updated

E13-11 (Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at $6,000 each. During 2014, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

E13-12 (Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2014, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2014. It is estimated that 60% of the coupons will eventually be presented for redemption.

P13-9 (Premium Entries and Financial Statement Presentation) Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2014 and 2015 are as follows. (All purchases and sales are for cash.)

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ACCT 551 Week 1 Homework E12-5, E12-16 updated

ACCT 551 Week 1 Homework E12-5, E12-16 updated

E12-5 (Correct Intangible Assets Account) As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2014, are prepared. The controller for William J. Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.

E12-16 (Accounting for R&D Costs) Leontyne Price Company from time to time embarks on a research pro- gram when a special project seems to offer possibilities.

In 2013, the company expends $325,000 on a research project, but by the end of 2013 it is impossible to determine whether any benefit will be derived from it.

(a) What account should be charged for the $325,000, and how should it be shown in the financial statements?
(b) The project is completed in 2014, and a successful patent is obtained. The R&D costs to complete the project are $110,000.

(c) In 2015, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2022.
(d) Additional engineering and consulting costs incurred in 2015 required to advance the design of a product to the manufacturing stage total $60,000.

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ACCT 551 Week 1 Discussion BE12-2, BE12-3, BE12-7, BE12-6, BE 12-12, Ex 12-15 updated

ACCT 551 Week 1 Discussion BE12-2, BE12-3, BE12-7, BE12-6, BE 12-12, Ex 12-15 updated

 

BE12-2 makes us learn that if any legal cost is incurred to defend an intangible assets  it should be added to the book value of intangible asset and depreciated over its remaining useful life.  Book Value is determined by subtracting amortization till the date of incurring legal cost from the purchase price.

 

BE12-3 provides us repeated practice to record amortization on intangible asset



 

The take away from BE12-7 is how to test goodwill for impairment. We test goodwill for impairment by comparing the Fair Value (FV) with the Carrying Value(CV) of the reporting unit.  If FV is less than CV then we proceed further to test goodwill for impairment. 



 

BRIEF EXERCISE 12-7

Because the fair value of the division exceeds the carrying amount of the assets, goodwill is not considered to be impaired. No entry is necessary.

 

BE12-6.  This question helped us learn testing an intangible for impairment. This test involves two steps Recoverability test and Fair Value Test. In the Recoverability test we compare the Future Cash Flows and the Carrying Amount of the intangible. Here in this question the future cash flows of $210,000 are less than the carrying value therefore there is an impairment. Now we apply the second test to find the amount of impairment loss by comparing the fair value ($110,000) with the carrying value (300,000). The impairment loss here is $190,000 ( 300,000-110,000). Please note that the intangible is now reported only at $110,000

 

BE12-12.  Point to note in this question is that the Research and Development cost of $96,000 is not added to the cost of intangible but only the legal expenses of n$85,000 to defend the intangible is added.  


 






EXERCISE 12-15

 

(a)

December 31, 2010

Loss on Impairment…………………………

15,000,000

          Goodwill…………………………………..

15,000,000

 

The fair value of the reporting unit ($335 million) is below its carrying value ($350 million). Therefore, an impairment has occurred. To determine the impair-ment amount, we first find the implied goodwill. We then compare this implied fair value to the carrying value of the goodwill to determine the amount of the impairment to record.

 

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ACCT 551 Midterm Exam Set 1 updated

ACCT 551 Midterm Exam Set 1 updated

Question 1. (TCO C) The major problem of accounting for intangibles is determining
fair market value.
separability.
salvage value.
useful life.

Question  2. (TCO C) Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to
patents, and amortized over the legal life of the patent.
legal fees, and amortized over 5 years or less.
expenses of the period.
patents, and amortized over the remaining useful life of the patent.

Question  3. (TCO C) Purchased goodwill should
be written off as soon as possible against retained earnings.
be written off as soon as possible as an extraordinary item.
be written off by systematic charges as a regular operating expense over the period benefited.
not be amortized.

Question 4. (TCO C) The general ledger of Vance Corporation as of December 31, 2011, includes the following accounts:

Copyrights                                                                                            $ 30,000
Deposits with advertising agency (will be used to promote goodwill)       27,000
Discount on bonds payable                                                                   70,000
Excess of cost over fair value of identifable net asset of
acquired subsidiary                                                                   390,000
Trademarks                                                                                           90,000

In the preparation of Vance’s balance sheet as of December 31, 2011, what should be reported as total intangible assets?
$480,000.
$507,000.
$510,000.
$537,000.

Question 5. (TCO C) General Products Company bought Special Products Division in 2010 and appropriately recorded $500,000 of goodwill related to the purchase. On December 31, 2011, the fair value of Special Products Division is $4,000,000 and it is carried on General Products’ books for a total of $3,400,000, including the goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $400,000 exists on December 31, 2011. What goodwill impairment should be recognized by General Products in 2011?
$0
$200,000
$50,000
$300,000

Question 6. (TCO D) An employee’s net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee’s
portion of FICA taxes and unemployment taxes.
portion of FIT, SIT, and Medicare deductions.
portion of FICA taxes, unemployment taxes, and any voluntary deductions.
portion of FICA taxes and any voluntary deductions.

Question 7. (TCO D) Which of the following taxes does not represent a payroll deduction a company may incur?
Federal income taxes
FICA taxes
State unemployment taxes

State income taxes

Question 8. (TCO D) Which of the following is not acceptable treatment for the presentation of current liabilities?
Listing current liabilities in order of maturity
Listing current liabilities according to amount
Offsetting current liabilities against assets that are to be applied to their liquidation
Showing current liabilities immediately below current assets to obtain a presentation of working capital

Question 9. (TCO D) On December 31, 2010, Irey Co. has $2,000,000 of short-term notes payable due on February 14, 2011. On January 10, 2011, Irey arranged a line of credit with County Bank that allows Irey to borrow up to $1,500,000 at 1% above the prime rate for 3 years. On February 2, 2011, Irey borrowed $1,200,000 from County Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2010 balance sheet issued on March 5, 2011 is
$0.
$300,000.
$500,000.
$800,000.

Question  10. (TCO D) Tender Foot, Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that it may lose the case. The attorneys estimated that there is a 40% chance of losing. Tender Foot’s attorney estimated that if it loses, then the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?
Debit Litigation Expense for $500,000 and credit Litigation Liability for $500,000.
No journal entry is required.
Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000.
Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000

Question 11. (TCO D) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
exceed what it would have been had the effective-interest method of amortization been used.
be less than what it would have been had the effective-interest method of amortization been used.
be the same as it would have been had the effective-interest method of amortization been used.
be less than the stated (nominal) rate of interest.

Question 12. (TCO D) If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
debit to Interest Payable.
credit to Interest Receivable.
credit to Interest Expense.
credit to Unearned Interest.

Question. 13. (TCO D) Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
$19,400,000
$20,450,000
$19,700,000
$19,100,000

Question. 14. (TCO D) A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. What is the interest expense for 2011, using straight-line amortization?
$1,540,207
$1,560,000
$1,569,192
$1,579,793

Question  15. (TCO D) On January 1, Patterson, Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of
$274,500
$285,500
$258,050
$255,000

Question 1. (TCO C) Barkley Corp. obtained a trade name in January 2009, incurring legal costs of $15,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2010, incurring $4,900 in legal fees. At the beginning of 2011, based on updated marketing research, Barkley determines that the fair value of the trade name is $12,000. Estimated total future cash flows from the trade name are $13,000 on January 4, 2011.
Instructions:
Prepare the necessary journal entries for the years ending December 31, 2009, 2010, and 2011. Show all computations.

Question  2. (TCO C) It has been argued on the grounds of conservatism that all intangible assets should be written off immediately after acquisition. Discuss the accounting arguments against this treatment.

Question  3. (TCO D) Edwards Co. includes one coupon in each bag of dog food it sells. In return for four coupons, customers receive a dog toy that the company purchases for $1.20 each. Edward’s experience indicates that 60% of the coupons will be redeemed. During 2010, 100,000 bags of dog food were sold, 12,000 toys were purchased, and 40,000 coupons were redeemed. During 2011, 120,000 bags of dog food were sold, 16,000 toys were purchased, and 60,000 coupons were redeemed.
Instructions:
Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the balance sheet for 2010 and 2011.

Question  4. (TCO D) On January 1, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:
Present value of 1 for 10 periods at 10%                                                .386
Present value of 1 for 10 periods at 12%                                                .322
Present value of 1 for 20 periods at 5%                                      .377
Present value of 1 for 20 periods at 6%                                      .312
Present value of annuity for 10 periods at 10%                           6.145
Present value of annuity for 10 periods at 12%                           5.650
Present value of annuity for 20 periods at 5%                             12.462
Present value of annuity for 20 periods at 6%                             11.470

Instructions:
- Calculate the issue price of the bonds.
- Without prejudice to your solution in Part (a), assume that the issue price was $884,000. Prepare the amortization table for 2011, assuming that amortization is recorded on interest payment dates.

Question  5. (TCO D) Hurst, Inc. sold its 8% bonds with a maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the bonds by selling a updated 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase $500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds’ call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations. 

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ACCT 551 Final Exam Set 2 updated

ACCT 551 Final Exam Set 2 updated

Question 1. 1. (TCO C) Which characteristic is not possessed by intangible assets? (Points : 5)
Physical existence
Short-lived
Result in future benefits
Expensed over current and/or future years

Question 2. 2.   (TCO C) One factor that is not considered in determining the useful life of an intangible asset is (Points : 5)
salvage value.
provisions for reupdatedal or extension.
legal life.
expected actions of competitors.

Question 3. 3.   (TCO C) Intangible assets are reported on the balance sheet (Points : 5)
with an accumulated depreciation account.
in the property, plant, and equipment section.
separately from other assets.
None of the above

Question 4. 4. (TCO D) Which of the following is a current liability? (Points : 5)
A long-term debt maturing currently, which is to be paid with cash in a sinking fund
A long-term debt maturing currently, which is to be retired with proceeds from a updated debt issue
A long-term debt maturing currently, which is to be converted into common stock
A long-term debt maturing currently, which is to be paid with current assets

Question 5. 5. (TCO D) A contingent liability (Points : 5)
definitely exists as a liability but its amount and due date are indeterminable.
is accrued even though not reasonably estimated.
is not disclosed in the financial statements.
is the result of a loss contingency.

Question 6. 6. (TCO D) Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach? (Points : 5)
Estimated liability under warranties
Warranty expense
Unearned warranty revenue
Warranty revenue

Question 7. 7. (TCO D) The term used for bonds that are unsecured regarding principal is (Points : 5)
junk bonds.
debenture bonds.
in-debenture bonds.
callable bonds.

Question 8. 8.  (TCO D) On July 1, 2009, Noble, Inc. issued 9% bonds in the face amount of $5,000,000, which mature on July 1, 2015. The bonds were issued for $4,695,000 to yield 10%, resulting in a bond discount of $305,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2011, Noble’s unamortized bond discount should be (Points : 5)
$264,050.
$255,000.
$244,000.
$215,000.
a2009–2010
$4,695,000 + [($4,695,000 × .1) – ($5,000,000 × .09)] = $4,714,500.
2010–2011:
$4,714,500 + ($471,450 – $450,000) = $4,735,950 $5,000,000 – $4,735,950 = $264,050

Question 9. 9.  (TCO E) Total stockholders’ equity represents (Points : 5)
a claim to specific assets contributed by the owners.
the maximum amount that can be borrowed by the enterprise.
a claim against a portion of the total assets of an enterprise.
only the amount of earnings that have been retained in the business.

Question 10. 10. (TCO F) Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2010, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a (Points : 5)
property dividend.
stock dividend.
liquidating dividend.
cash dividend.

Page 2

Question 1. 1. (TCO C) If intangible assets are acquired for stock, how is the cost of the intangible determined? (Points : 20)

Question 2. 2. (TCO D) Total payroll of Watson Co. was $920,000, of which $160,000 represented amounts paid in excess of $100,000 to certain employees. The amount paid to employees in excess of $7,000 was $720,000. Income taxes withheld were $225,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the FICA tax is 7.65% on an employee’s wages to $100,000 and 1.45% in excess of $100,000.
(a) Prepare the journal entry for the wages and salaries paid.
(b) Prepare the entry to record the employer payroll taxes. (Points : 30)

Question 3. 3. (TCO D) On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%, resulting in bond premium of $405,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2010, Solis’s adjusted unamortized bond premium is what amount? Please show computations. (Points : 35)

Question 4. 4.
(TCO E) The original sale of the 450 par-value common shares of Gray Company was recorded as follows:

Record the treasury stock transactions (given below) under the cost method.
Transactions:
(a)   Bought 300 shares of common stock as treasury shares at $62
(b)   Sold 80 shares of treasury stock at $60
(c)   Sold four treasury shares at $68
(Points : 30)

Question 5. 5. (TCO F) In each of the following independent cases, it is assumed that the corporation has $400,000 of 6% preferred stock and $1,600,000 of common stock outstanding, each having a par value of $10. No dividends have been declared for 2009 and 2010.
(a) As of 12/31/11, it is desired to distribute $250,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and nonparticipating?
(b) As of 12/31/11, it is desired to distribute $400,000 in dividends. How much will the preferred stockholders receive if their stock is cumulative and participating up to 11% in total?
(c) On 12/31/11, the preferred stockholders received a $120,000 dividend on their stock, which is cumulative and fully participating. How much money was distributed in total for dividends during 2011? (Points : 30)

Question 6. 6. (TCO A) At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, what would be the diluted earnings per share for the year ended December 31, 2011 (rounded to the nearest penny)? Show all computations. (Points : 25)

Question 7. 7.
(TCO B) The following information pertains to Fox Inc.’s portfolio of marketable securities for the Year ended Dec 31, Year 1 and Dec 31, Year 2.
Cost Fair Value at

Record the journal entries for the following marketable securities transactions based on the information given in the table.
1. Mark to market journal entry for the  Smith Co security at 12/31 Year 1
2. Mark to market journal entry for the  Jones Co security at 12/31 Year 1
3. Mark to market journal entry for the  Williams Co security at 12/31 Year 1
4. Mark to market journal entry for the  Gores  Co security at 12/31 Year 1
5. Mark to market journal entry for the  Smith Co security at 12/31 Year 2
6. Mark to market journal entry for the  Jones  Co security at 12/31 Year 2
7. Mark to market journal entry for the  Williams Co security at 12/31 Year 2
8. Mark to market journal entry for the  Gores  Co security at 12/31 Year 2
9. Journal entry to record  purchase of Martin Co. Investment
10. Journal entry to record the impairment of Martin Co. Investment
(Points : 30)

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