P15-19A ldy been recorded P15-19A Classifying and accounting for debt and equity
ID: 2337049 • Letter: P
Question
P15-19A
ldy been recorded P15-19A Classifying and accounting for debt and equity investments Jerway Corporation generated ecess cash and invested in securities Learni 2018 CR $5.38 ul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at $12.00 per share. r all Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo Aug. 21 Sep. 16 Oct. 1 Received a cash dividend of $0.80 per share on the Pogo stock investment Sold the Pogo stock for $13.40 per share. Purchased a Violet bond for $20,000 at face value. letway classifies the investment as trading and short term. Dec. 31 Received a $100 interest payment from Violet 31 Adjusted the Violet bond to its market value of $22,000 Requirements 1. Classify each of the investments made during 2018. (Assume the equity invest- ments represent less than 20% of ownership of outstanding voting stock) 2. Journalize the 2018 trasactions. Explanations are not required. 3. Prepare T-accounts for the investment assets, and show how to report the invest ments on Jetway's balance sheet at December 31, 2018. Where is the unrealized holding gain or loss associated with the trading debt investment reported? 4.Explanation / Answer
1 Classification of Investments Made Purchase of Shares from POGO will be classified as a current asset since it is held for short term to meet cash for normal operations Purchase of Bonds from VELVET also be classified as a current asset because these bonds are purchased for trading intended to held for a shorter duration. 2 Journal Entries Debit Credit July-02-2018 Investment in POGO(shares) A/c Dr Investment in POGO(shares) A/c Dr 50400 02-07-2018 To Cash A/c 50400 21-08-2018 By Cash(Dividend received) 3360 (4200 shares * $12) 16-09-2018 To Profit &Loss A/c 9240 16-09-2018 By Cash 56280 To Cash A/c 50400 (profit on sale) 59640 59640 Aug-21-2018 Cash A/c Dr 3360 Investment in VIOLET(bond) A/c Dr (4200 shares*$0.8) 01-10-2018 To Cash A/c 20000 31-12-2018 By Cash(Interest) 100 To Dividend on POGO Shares A/c 3360 31-12-2018 To Unrealised Gain A/c 2100 31-12-2018 By Balance c/d 22000 Sep-16-2018 22100 22100 Cash A/c Dr 56280 (4200 shares*$13.4) Profit & Loss Account(Jetway) To Investment in POGO(shares) A/c 56280 31-12-2018 To Balance b/d 12700 21-08-2018 By Dividend 3360 16-09-2018 By Investment in POGO shares 9240 Oct-1-2018 (Profit on sale) Investment in VIOLET(bond) A/c Dr 20000 31-12-2018 By Interest(Bond) 100 To Cash A/c 20000 12700 12700 Dec-31-2018 Cash A/c Cash A/c Dr 100 21-08-2018 To Dividend on POGO Shares A/c 3360 02-07-2018 Investment in POGO(shares) A/c 50400 To Interest received(Bond) A/c 100 16-09-2018 To Investment in POGO(shares) A/c 56280 01-10-2018 Investment in VIOLET(bond) A/c 20000 31-12-2018 To Interest received(Bond) A/c 100 31-12-2018 To Balance C/d 10600 Investment in VIOLET(bond) A/c Dr 2100 70400 70400 To Unrealised holding gain A/c 2100 ($22000-$19900) Treatment of Items in Balance Sheet(Jetway) as on 31-12-2018 Assets (a) Current Assets (1)Short term Investments Investments in VELVET Bond 22000 Cash -10660 Liabilities (b) Stockholders Equity 2100 Unrealised Gain(VELVET Bond) Retained Earnings 12700 4 Any resulting gain or loss is recorded to an unrealised gain or loss account that is reported as a separate line item in the stockholders equity of balance sheet The gains & losses for available for sale securities are not reported to income statement until those securities are sold.
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