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Solutions; Accounting Chapter 15 &16
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Problem 15-1A Recording transactions and fair value adjustments for trading securities

Carlsville Company, which began operations in 2015, invests its idle cash in trading securities. The following transactions are from its short-term investments in trading securities.

2015

Jan. 20 Purchased 800 shares of Ford Motor Co. at $26 per share plus a $125 commission.

Feb. 9 Purchased 2,200 shares of Lucent at $44.25 per share plus a $578 commission.

Oct. 12 Purchased 750 shares of Z-Seven at $7.50 per share plus a $200 commission.

Dec. 31 Fair value of the short-term investments in trading securities is $130,000.

2016

 Apr. 15 Sold 800 shares of Ford Motor Co. at $29 per share less a $285 commission.

July 5 Sold 750 shares of Z-Seven at $10.25 per share less a $102.50 commission.

 July 22 Purchased 1,600 shares of Hunt Corp. at $30 per share plus a $444 commission.

Aug. 19 Purchased 1,800 shares of Donna Karan at $18.25 per share plus a $290 commission.

Dec. 31 Fair value of the short-term investments in trading securities is $160,000.

2017

Feb. 27 Purchased 3,400 shares of HCA at $34 per share plus a $420 commission.

 Mar. 3 Sold 1,600 shares of Hunt at $25 per share less a $250 commission.

 June 21 Sold 2,200 shares of Lucent at $42 per share less a $420 commission.

June 30 Purchased 1,200 shares of Black & Decker at $47.50 per share plus a $595 commission.

Nov. 1 Sold 1,800 shares of Donna Karan at $18.25 per share less a $309 commission.

 Dec. 31 Fair value of the short-term investments in trading securities is $180,000.

Required

 Prepare journal entries to record these short-term investment activities for the years shown. On December 31 of each year, prepare the adjusting entry to record any necessary fair value adjustment for the portfolio of trading securities.

 

___________________________________________________________

Rose Company had no short-term investments prior to year 2015. It had the following transactions involving short-term investments in available-for-sale securities during 2015.                   

Apr. 16 Purchased 4,000 shares of Gem Co. stock at $24.25 per share plus a $180 brokerage fee.                                                                                                                                                                                               

May 1  Paid $100,000 to buy 91-day U.S. Treasury bills (debt securities): $100,000 principal amount, 6% interest, securities dated May 1.                                                                                                                    

July 7 Purchased 2,000 shares of PepsiCo stock at $49.25 per share plus a $175 brokerage fee.                                                                                                                                                                                    

         20 Purchased 1,000 shares of Xerox stock at $16.75 per share plus a $205 brokerage fee.                                                                                                                                                                                     

Aug. 3 R eceived a check for principal and accrued interest on the U.S. Treasury bills that matured on July 31.                                                                                                                                                     

          15 Received an $0.85 per share cash dividend on the Gem Co. stock                                                                                                                                                                                                                             

          28 Sold 2,000 shares of Gem Co. stock at $30 per share less a $225 brokerage fee.                                                                                                                                                                                  

Oct. 1 Received a $1.90 per share cash dividend on the PepsiCo shares.                                                                                                                                                                                                                

Dec. 15 Received a $1.05 per share cash dividend on the remaining Gem Co. shares.                                                                                                                                                                                                       

          31 Received a $1.30 per share cash dividend on the PepsiCo shares.                                                                                                                                                                                                                             

                                                                                                                                                                                                                                                                               

Required                                                                                                                                                                                                                                                                                                                            

 1. Prepare journal entries to record the preceding transactions and events.                                                                                                                                                                                                       

2. Prepare a table to compare the year-end cost and fair values of Rose’s short-term investments in available-for-sale securities. The year-end fair values per share are: Gem Co., $26.50; PepsiCo, $46.50; and Xerox, $13.75.

3. Prepare an adjusting entry, if necessary, to record the year-end fair value adjustment for the portfolio of short-term investments in available-for-sale securities.                                                                                       

 

Analysis Component                                                                                                                                                                                                                     

 4. Explain the balance sheet presentation of the fair value adjustment for Rose’s short-term investments.                                                                                                                                                                                                                        

 5. How do these short-term investments affect Rose’s (a) income statement for year 2015 and (b) the equity section of its balance sheet at year-end 2015?                                                                                                              __________________________________________________

 

Problem 15-3A Recording, adjusting, and reporting long-term available-for-sale securities                                                                                                                                                                                                                                           

                                                                                                                                                                                                                                               

Grass Security, which began operations in 2015, invests in long-term available-for-sale securities.                                                                                                                                                                                                                                            

Following is a series of transactions and events determining its long-term investment activity.                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                               

2015                                                                                                                                                                                                                                      

Jan. 20 Purchased 1,000 shares of Johnson & Johnson at $20.50 per share plus a $240 commission.                                                                                                                                                                                                                                           

Feb. 9 Purchased 1,200 shares of Sony at $46.20 per share plus a $225 commission.                                                                                                                                                                                                                                         

June 12 Purchased 1,500 shares of Mattel at $27.00 per share plus a $195 commission.                                                                                                                                                                                                                                   

Dec. 31  Per share fair values for stocks in the portfolio are Johnson & Johnson, $21.50; Mattel, $30.90; Sony, $38.                                                                                                                                                                                                                                            

                                                                                                                                                                                                                                               

2016                                                                                                                                                                                                                                      

Apr. 15 Sold 1,000 shares of Johnson & Johnson at $23.50 per share less a $525 commission.                                                                                                                                                                                                                                       

 July 5 Sold 1,500 shares of Mattel at $23.90 per share less a $235 commission.                                                                                                                                                                                                                                   

July 22 Purchased 600 shares of Sara Lee at $22.50 per share plus a $480 commission.                                                                                                                                                                                                                                     

Aug. 19 Purchased 900 shares of Eastman Kodak at $17 per share plus a $198 commission.                                                                                                                                                                                                                                           

Dec. 31  Per share fair values for stocks in the portfolio are: Kodak, $19.25; Sara Lee, $20.00; Sony, $35.00                                                                                                                                                                                                                                             

                                          

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[Solved] Solutions; Accounting Chapter 15 &16
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