American Surety and Fidelity buys and sells securities expecting to earn profits

Question

American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2013, gains from selling trading securities totaled $5 million, losses were $12 million, and the company had earned $5 million in investment revenue. The following selected transactions relate to American’s trading account during December 2013, and the first week of 2014. The company’s fiscal year ends on December 31. No trading securities were held by American on December 1, 2013. 2013 Dec. 12 Purchased FF&G Corporation bonds for $22 million. 13 Purchased 2 million Ferry Intercommunications common shares for $28 million. 15 Sold the FF&G Corporation bonds for $22.1 million. 22 Purchased U.S. Treasury bills for $68 million and Treasury bonds for $75 million. 23 Sold half the Ferry Intercommunications common shares for $10 million. 26 Sold the U.S. Treasury bills for $72 million. 27 Sold the Treasury bonds for $73 million. 28 Received cash dividends of $200,000 from the Ferry Intercommunications common shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Ferry Intercommunications stock was $10 per share. 2014 Jan. 2 Sold the remaining Ferry Intercommunications common shares for $10.5 million. 5 Purchased Warehouse Designs Corporation bonds for $44 million. Required: 1.

Prepare the appropriate journal entry for each transaction or event during 2013, including the closing entry to income summary for the year. (If no entry is required for a particular event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Indicate any amounts that American would report in its 2013 balance sheet and income statement as a result of these investments. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Prepare the appropriate journal entry for each transaction or event during 2014.(If no entry is required for a particular event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

2.

Indicate any amounts that American would report in its 2013 balance sheet and income statement as a result of these investments. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

3.

Prepare the appropriate journal entry for each transaction or event during 2014.(If no entry is required for a particular event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Explanation / Answer

Journal entries

Adjusting entries

Closing entry

2 Balance sheet

Trading securities net                                          10m

other comprehensive income                             (5,7)m

3)journal entries for 2014

Date Description Debit Credit Dec 12 Investment in FF &G corporatin bonds $22m To cash $22m dec 13 Investment in ferry common shares $28 m To Cash $28m Dec 15 Cash $22.1m To investment in FF&G corporation bonds $22m To gain on sale of bonds .1m Dec 22 Investment US Treasury bills $68 Trasury bonds $75 to cash $143 Dec 23 Cash $10m loss on sale if investmetn     4m T investment in ferry CS $14m Dec 26 Cash $72m To investmetn in US Treasury bills $68m To Gain on sale $4m dec 27 Cash $73 loss on sale of investment $ 2 To Investmetn in US Treasury bonds $75 dec 28 Cash $200,000 investmetn revenue $200,000

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