Stave Company invests $10,000,000 in 5% fixed rate corporate bonds on January 1, 2020. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now$10,600,000. Interest is paid on January 1. Prepare journal entries for Stave Company to (a) record the transactions related to these bonds in 2020, assuming Stave does not elect the fair option; and (b) record the transactions related to these bonds in 2020, assuming that Stave Company elects the fair value option to account for these bonds.

Match (by letter) the following terms with their definitions. Each letter is used only once.

$$\begin{matrix} \text{Terms}\\ \hline \text{\_\_\_\_\_ 1. Publicly held corporation.}\\ \text{\_\_\_\_\_ 2. Organization chart.}\\ \text{\_\_\_\_\_ 3. Articles of incorporation.}\\ \text{\_\_\_\_\_ 4. Limited liability.}\\ \text{\_\_\_\_\_ 5. Initial public offering. }\\ \text{\_\_\_\_\_ 6. Double taxation.}\\ \text{\_\_\_\_\_ 7. S corporation.}\\ \text{\_\_\_\_\_ 8. Limited liability company.}\\ \end{matrix}$$

$$\begin{matrix} \text{Definitions}\\ \hline \text{a. Shareholders can lose no more than the amount they invest in the company.}\\ \text{b. Corporate earnings are taxed twice-at the corporate level and individual shareholder level.}\\ \text{c. Like an S corporation, but there are no limitations on the number of owners as in an S corporation.}\\ \text{d. Traces the line of authority within the corporation.}\\ \text{e. Allows for legal treatment as a corporation, but tax treatment as a partnership.}\\ \text{f. Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE).}\\ \text{g. The first time a corporation issues stock to the public.}\\ \text{h. Describes (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors.}\\ \end{matrix}$$

Klon Corporation owns 70 percent of Brant Company's stock and 60 percent of Torkel Company's stock. During 20X8, Klon sold inventory purchased in 20X7 for $100,000 to Brant for$150,000. Brant then sold the inventory at its cost of $150,000 to Torkel. Prior to December 31, 20X8, Torkel sold$90,000 of inventory to a non-affiliate for $120,000 and held$60,000 in inventory at December 31, 20X8.

Required

Give the journal entries recorded by Klon, Brant, and Torkel during 20X8 relating to the inter-corporate sale and resale of inventory.

To secure funding to convert their service vehicle fleet to hybrid technologies. MGL Industries is issuing green bonds to investors. You plan to buy $1 million of these bonds. This is how much you will raise by selling a vacation home that you acquired 25 years ago for$140,000. (a) At What rate has the value of the vacation home increased? (b) Write a short description of green bonds. How are they different from normal corporate, revenue, and debenture bonds? As an investor, would you buy green bonds? Explain.

Calculating the Cost of Debt $[\mathrm{LO} 2]$ Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the following table. If the corporate tax rate is $22$ percent, what is the aftertax cost of the company's debt?

Choose a corporate bond listed on the New York Stock Exchange. Visit Moody's website (www.moodys .com) to answer the following quest ions about this bond . (Note: You will have to create a free account on Moody 's website to view ratings .)

a. What is Moody's rating for the bond?

b. What is the purpose of the bond?

c. Does the bond have a call provision?

d. What collateral , if any, has been pledged as security for the bond?

Based on the information studied, would the bond be a good investment for you? Why or why not?

Suspect Company issued $600,000 of 9 percent first mortgage bonds on January 1, 20X1, at 103. The bonds mature in 20 years and pay interest semiannually on January 1 and July 1 . Prime Corporation purchased$400,000 of Suspect's bonds from the original purchaser on January 1, 20X5, for $396,800. Prime owns 60 percent of Suspect's voting common stock.

Required

Prepare the worksheet consolidation entry or entries needed to remove the effects of the inter-corporate bond ownership in preparing consolidated financial statements for$20 $\mathrm{X}$ 5$.

You had $10,000 to invest. You put x dollars in a safe, government-insured certificate of deposit paying 5$ $0.05 x + 0.12 ( 10,000 - x ).$ $a. Simplify the algebraic expression. b. Use each form of the algebraic expression to determine your total interest earned at the end of the year if you invested$6000 in the safe, government-insured certificate of deposit.

The Bellview Corporation had an annual gross income of $834,718 for the year. Business deductions totaled$697,497. What federal corporate income tax must Bellview pay for the year?

$$\begin{array}{r r |r r r} \text{If taxable income is:} & & & \text{Tax is:}\\ \hline \text{Over-} & \text{But not over-} & & & \text{Of the amount over-}\\ 0 & 50,000 & & 15\% & 0\\ \$50,000 & \$75,000 & \$7500 & +25\% & \$50,000\\ 75,000 & 100,000 & 13,250 & +34\% & 75,000\\ 100,000 & - & 21,750 & +39\% & 100,000\\ \end{array}$$

The exchange rate as a self-stabilizing mechanism: Think about an economy that experiences a decline in corporate confidence (which tends to reduce investment). The uncovered interest parity requirement is denoted by UIP. Consider a variable exchange rate for the economy. Show the short-term impact of the decline in business confidence on output, the interest rate, and the exchange rate in an IS-LM-UIP diagram. What tends to happen to output when the exchange rate changes on its own? The impact of the decline in business confidence on output is it dampened (made smaller) or amplified (made greater) by the change in the exchange rate?

Purse Corporation owns 70 percent of Scarf Company's voting shares. On January 1, 20X3, Scarf sold bonds with a par value of $600,000 at 98. Purse purchased$400,000 par value of the bonds; the remainder was sold to non-affiliates. The bonds mature in five years and pay an annual interest rate of 8 percent. Interest is paid semiannually on January 1 and July 1.

Required

Give all worksheet consolidation entries needed to remove the effects of the inter-corporate bond ownership in preparing consolidated financial statements for 20X4.

Packed Corporation owns 70 percent of Snowball Enterprises' stock. On January 1, 20X1, Packed sold $1 million par value, 7 percent (paid semiannually), 20-year, first mortgage bonds to Kling Corporation at 97. On January 1, 20X8, Snowball purchased$300,000 par value of the Packed bonds directly from Kling for $296,880.

Required

Prepare the consolidation entry needed at December 31, 20X8, to remove the effects of the inter-corporate bond ownership in preparing consolidated financial statements.

Consider the growth of the following virus. A new virus has been created and is distributed to 100 computers in a company via a corporate E-mail. From these workstations the virus continues to spread. Let t=0 be the time of the first 100 infections, and at t=17 minutes the population of infected computers grows to 200. Assume the anti-virus companies are not able to identify the virus or slow its progress for 24 hours, allowing the virus to grow exponentially.

What will the population be after 1 hour 30 minutes?

You had $\$10,000$ to invest. You put $x$ dollars in a safe, government-insured certificate of deposit paying $5\%$ per year. You invested the remainder of the money in noninsured corporate bonds paying $12\%$ per year. Your total interest earned at the end of the year is given by the algebraic expression

$$0.05x + 0.12(10,000 - x).$$

a. Simplify the algebraic expression. b. Use each form of the algebraic expression to determine your total interest earned at the end of the year if you invested $\$6000$ in the safe, government-insured certificate of deposit.