Journalize the following transactions, all securities purchased will be held for

Question

Journalize the following transactions, all securities purchased will be held for long-term appreciation:

1. Purchase 30,000 shares of XYZ Company for $28.30 per share plus $1,000 commission. XYZ Company is traded on the New York Stock Exchange and has 1,000,000 shares of voting stock authorized of which 100,000 shares are issued and outstanding. XYZ supplies our company with various products. We are XYZ's largest shareholder.
2. Purchase 1000 shares of ABC Company for $100,000, plus a $5,000 commission. The percentage of ownership is less than 1%.
3. XYZ Company declares and distributes a cash dividend of $1.10 per share.
4. XYZ Company reports it has total income for the year of $450,000.
5. ABC Company reports it has $7,000,000 of income for the year. Year end market value of ABC Company is $97.50 per share.

Journalize all necessary activity above (1-5)

How are available-for-sale securities listed on the Balance Sheet and at what amount? What criteria is used in that classification?

Explanation / Answer

Journal Entries

Treatment of available- for - sale securities

If a business has investment in debt and equity securities that are classified as available for sale securities, and also if the equity securities have readily determinable fair values, the subsequently record their fair values in Balance Sheet. Exclude any unrealized holding gains and losses from earnings, and instead report them in in other comprehensive income untill they have been realized.

Classification of Available-for-sale securities.

Available for sale securities may be classified as current assets on the balace sheet if they are to be liquidated within one year, or as a long term assets if they are to be held for a longer period of time

S. No. Particulars Debit Credit 1. Investment in XYZ.Co. $849000 To Cash A/c dr. $849000 (for acquisiton of in XYZ Co.) Commision A/c Dr. $1000 To Cash A/c $1000 (for payment of commission) 2. Investment in ABC $100000 To cash A/c $100000 (for acquisition of shares in ABC) Commission expenses A/c Dr. $5000 To Cash A/c $5000 (for payment of commission) 3 Cash A/c Dr. $33000 To profit and loss A/c $33000 (for dividend recieved) 4 - No Entry - Nil Nil 5 - No Entry - Nil Nil

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