Posted: October 20th, 2022

On January 1, 2013, Rothman Company purchased

Part 1 – InvestmentsBelow is information regarding the investment portfolio of Rothman Corp. Use the straight-line method to amortize any bond discount or premium.On January 1, 2013, Rothman Company purchased the bonds of Griffen Corp at 97. The 8% bonds had a face value of $800,000 and mature in five years. Rothman had intended to hold them for five years, but may need to sell them sooner in order to free up cash for a construction project. The bonds had a fair value of $770,000 on December 31, 2013 and a fair value of $870,000 on December 31, 2014.On February 1, 2013, Rothman Company purchased 500 of the 10,000 outstanding shares of Sanchez Company common stock for $26.50 per share. On December 31, 2013, the stock had a fair value of $29.50 per share. On December 31,2014 the stock had a fair value of $33.20 per share. Rothman plans to hold the stock for several years until they can acquire 20% of Sanchez Company’s stock. Sanchez had net income of $350,000 and paid dividends of $20,000 in 2013 and had net income of $470,000 and paid $35,000 in dividends in 2014.On February 9, 2013, Rothman purchased 1,000 of the 10,000 shares of Cushman Company common stock for $110 per share. Rothman had intended to hold the stock for several years. On December 31, 2013, Cushman Corp stock had a fair value of $75 per share. On September 15, 2014 Rothman sold all of its 1,000 shares of Cushman Corp stock for $85 per share to avoid any further losses from the decline in the stock price.On October 1, 2014, Rothman purchased bonds issued by Glorimar Company for $95,000. The 8% bonds have a face value of $100,000 and pay interest semi-annually on April1 and October 1. The bonds mature on September 30, 2019. On December 31, 2014, the bonds had a fair value of $96,500. Rothman feels that the bonds will continue to increase in value and plans to sell them in the first quarter of 2015.On January 1, 2014, Rothman purchased the bonds of O’Malley Corp for $108,000, including $5,200 of brokerage costs. The 10%, five-year bonds have a face value of $100,000 and pay interest semi-annually on January 1 and July 1. Rothman purchased these bonds to fund an expansion project that they plan to start in the early 2019. The fair value of the bonds at December 31, 2014 is $107,780.On November 1, 2014, Rothman purchased 30,000 of the 100,000 outstanding shares of Weston Corp stock for $32 per share. Rothman had the ability and intent to hold the stock for a long time. On December 31, 2014, Weston Corp’s stock had a fair value of $34.50 per share. Weston Corp reported $660,000 of net income for 2014 and declared $80,000 in dividends on December 31, 2014.On May 1, 2013, Rothman purchased 10,000 of the 50,000 outstanding shares of Scott Company common stock for $54 per share. Rothman was not able to exert significant control over Scott Company. The fair value of Scott Company’s stock was $57.10 on December 31, 2013 and $58.20 on December 31, 2014. Scott declared net income of $375,000 and dividends of $20,000 on December 31, 2013 and net income of $480,000 and dividends of $35,000 on December 31 2014.On Jan 1, 2013, Rothman purchased 1,000 of the 12,000 outstanding shares of Gomez Company common stock for $36 per share plus $1,200 in brokerage fees. The fair value of the stock on December 31, 2013 was $39.50 per share. Rothman did not know how long they expected to hold the Gomez company stock, but assumed it would be for a few years. On July 1, 2014, Rothman sold 25% of the Gomez Company stock for $42.50 per share, plus $800 in brokerage (selling) fees. The fair value of Gomez Company stock on December 31, 2014 was $44.80.Instructions: Below each of the transactions listed above, please complete the following:Identify what TYPE of investment it is (FV – Held to Maturity, FV- Available-for-Sale, FV – Trading or Equity Method).State at what amount you report each investment on the December 31, 2014 balance sheet.For fair value securities, state whether any gains or losses are realized or unrealized and whether they should be reported in the Equity account on the Balance Sheet or on the Income Statement.Prepare the journal entries for any equity transactions above. Your entries must include all of the equity method transactions.Problem 2 – Deferred Taxes Costanza Corporation began operations during 2013. Other information provided by Costanza for 2013 and 2014 are as follows:2013: Depreciation costs are written off for income tax purposes on a different basis from that used for accounting purposes, resulting in a $60,000 additional expense for tax purposes as compared to accounting purposes that will reverses at an equal amount per year for each of the next three years.2014:The depreciation difference from 2013 reverses as expected.Costanza collected $45,000 for rent under operating leases that will be earned equally during 2014, 2015, and 2016.Penalties incurred amounted to $3,000, but they will not be paid until 2015.Entertainment expenses reported on the income statement totaled $4,000. The amount allowed for tax purposes is 50 percent. Costanza accrued interest revenue of $5,000 on municipal bonds. Interest will be received during 2015.The enacted tax rates are 26 percent for 2013, 30 percent for 2014, 35 percent for 2015, and 32 percent for 2016 and thereafter.Instructions:Determine the amounts that will be reported on the December 31, 2014, balance sheet as deferred tax assets or liabilities for each item given.Which items will produce permanent differences? On which side (books or tax) will these be reflected?

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