ADMS 3595 Chapter Notes -Preferred Stock, Hybrid Security, Net Income
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Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:
1 | Name | Number of Shares | Total Cost | Total Fair Value |
2 | Tornado Inc. | 830.00 | $14,857.00 | $16,185.00 |
3 | Tsunami Corp. | 1,230.00 | 31,488.00 | 34,809.00 |
4 | Typhoon Corp. | 2,170.00 | 44,268.00 | 43,834.00 |
5 | Total | $90,613.00 | $94,828.00 |
On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.
Required:
A. | Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):
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B. | How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities? |
Chart of Accounts
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Journal
Shaded cells have feedback.
A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.
How does grading work?
PAGE 10
JOURNAL
Score: 33/51
DATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT | |
---|---|---|---|---|---|
1 | ? | ? | |||
2 | ? | ||||
3 | ? | ? | |||
4 | ? |
Points:
6.47 / 10
Feedback
Check My Work
1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.
2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.
Final Question
Shaded cells have feedback.
B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?
Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholdersâ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to âcancel outâ over time.
Points:
5 / 5
posting for sec times any incomplete work will bereported answer all 2 parts investment 1 to 7 and finacial statmentand valution 1 to 6
You are working for The Wellington Company on temporaryassignment while one of the accountants is on family leave. Youhave been asked to review the companyâs investment journal entriesand provide necessary information to the accountant preparing thefinancial statements.
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JOURNAL
ACCOUNTING EQUATION
DATE | DESCRIPTION | POST.REF. | DEBIT | CREDIT | ASSETS | LIABILITIES | EQUITY | |
---|---|---|---|---|---|---|---|---|
1 | Jan. 17 | Investments-Red Rock Co. Stock | 38,500.00 | ? | ||||
2 | Cash | 38,500.00 | ? | |||||
3 | Feb. 5 | Investments-Sunset Village Bonds | 35,000.00 | ? | ||||
4 | Interest Receivable | 300.00 | ? | |||||
5 | Cash | 35,300.00 | ? | |||||
6 | 23 | Investments-Mays and Co. Stock | 26,250.00 | ? | ||||
7 | Cash | 26,250.00 | ? | |||||
8 | Mar. 31 | Cash | 350.00 | ? | ||||
9 | Interest Receivable | 300.00 | ? | |||||
10 | Interest Revenue | 50.00 | ? | |||||
11 | Apr. 6 | Investment in Minions Corp. Stock | 175,000.00 | ? | ||||
12 | Cash | 175,000.00 | ? | |||||
13 | 30 | Cash | 750.00 | ? | ||||
14 | Dividend Revenue | 750.00 | ? | |||||
15 | Jul. 1 | Cash | 18,690.00 | ? | ||||
16 | Loss on Sale of Investment | 2,520.00 | ? | |||||
17 | Interest Revenue | 210.00 | ? | |||||
18 | Investments-Sunset Village Bonds | 21,000.00 | ? | |||||
19 | Aug. 14 | Cash | 41,300.00 | ? | ||||
20 | Gain on Sale of Investments | 1,800.00 | ? | |||||
21 | Investments-Harding Construction Stock | 39,500.00 | ? | |||||
22 | 27 | Cash | 3,500.00 | ? | ||||
23 | Investment in Minions Corp. Stock | 3,500.00 | ? | |||||
24 | Sep. 22 | Cash | 29,750.00 | ? | ||||
25 | Gain on Sale of Investments | 3,500.00 | ? | |||||
26 | Investments-Mays and Co. Stock | 26,250.00 | ? | |||||
27 | 30 | Cash | 140.00 | ? | ||||
28 | Interest Revenue | 140.00 | ? | |||||
29 | Nov. 1 | Investment in Minions Corp. Stock | 15,750.00 | ? | ||||
30 | Income of Minions Corp. | 15,750.00 | ? | |||||
31 | Dec. 31 | Unrealized Loss on Available-For-Sale Investments | 3,275.00 | ? | ||||
32 | Valuation Allowance for Available-For-Sale Investments | 3,275.00 | ? | |||||
33 | 31 | Valuation Allowance for Trading Investments | 2,150.00 | ? | ||||
34 | Unrealized Gain on Trading Investments | 2,150.00 | ? |
Investments
Review the journal entries on The Wellington Company panel thenanswer the following questions.
1. | Which item is likely to be atrading security? Mays and Co. Why? |
2. | How are brokerage commission feestreated on stock sales vs. stock purchases? |
3. | Based on these journal entries,what is the companyâs investment in Sunset Village bonds at the endof the year? |
4. | The journal entry on Aug. 27 mostlikely shows |
5. | As an investment, bonds are alwayscategorized as |
6. | What is the companyâs investment inMinions Corp. at the end of the year? |
7. Which of the following investments are likely to beavailable-for-sale securities? Check all that apply.
Harding Construction stock
Mays and Co. stock
Cannot be determined
Red Rock Co. stock
Sunset Village bonds
Minions Corp. stock
Financial Statements and Valuation
The accountant preparing the financial statements has asked youto provide the fair value as of the end of the year for theinvestments. Present the information as it would be shown on thefinancial statements. Last year, The Wellington Company reportedcosts of $68,000 in trading investments and $82,000 inavailable-for-sale investments. Refer to the journal entries shownon The Wellington Company panel. Assume that all investments soldduring this year were trading investments and that purchases duringthe year were new investments.
1. Select the correct label for each line and fill in theamount. In classifying the investments, choose a categorizationwhich seems most likely, given the pattern of transactions in thejournal entries. Enter all amounts as positive numbers. If anamount box does not require an entry, leave it blank.
Trading Securities | |
Available-For-Sale Securities | |
2. Where on the balance sheet dotrading securities appear? | |
3. Where is the gain or loss fromthe change in value of available-for-sale securities reported inthe financial statements? | |
4. Where are held-to-maturitysecurities reported? Based on the journal entries for this year,does the company have any held-to-maturity securities? | |
5. Where are securities held forstrategic reasons reported in the financial statements when usingthe equity method? Based on the journal entries for this year, doesThe Wellington Company have any equity securities? |
6. Which of the following items does not affect net income?Check all that apply.
only unrealized gains or losses for all investments
realized loss on available-for-sale securities
realized gain on trading securities
none of these answers is correct
both gains and losses of any sort for all investments
unrealized loss on trading securities
unrealized gain on available-for-sale securities