PE-2 In January 2014, the management of Weast Company concludes that it has suff
ID: 2455803 • Letter: P
Question
PE-2 In January 2014, the management of Weast Company concludes that it has sufficient cash to purchase some short-term investments in debt and stock securities. During the year, the following transactions occurred. Journalize investment transactions, prepare adjusting entry, and show financial statement presentation. (LO 2, 3, 5, 6), AN Feb. 1 Purchased 1,200 shares of ALF common stock for $51,600. Mar. 1 Purchased 500 shares of LNC common stock for $18,500. Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000. Interest is payable semiannually on April 1 and October 1. July 1 Received a cash dividend of $0.80 per share on the ALF common stock. Aug. 1 Sold 200 shares of ALF common stock at $42 per share. Sept. 1 Received $2 per share cash dividend on the LNC common stock. Oct. 1 Received the semiannual interest on the CRT bonds. Oct. 1 Sold the CRT bonds for $75,700. At December 31, the fair values of the ALF and LNC common stocks were $39 and $30 per share, respectively. Instructions (a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.) (b) Prepare the adjusting entry at December 31, 2014, to report the investments at fair value. All securities are considered to be trading securities. (c) Show the balance sheet presentation of investment securities at December 31, 2014. (d) Identify the income statement accounts and give the statement classification of each account.
Explanation / Answer
Weast Company Investment details 1 ALF Common Stock Feb 1. No of Share Purchased 1,200 Value of stock 51,600 Purchase Price /Share 43.00 Jul 1. Dividend iNcome 960 Aug 1. Sale of share 200 nos @ 42 8,400 Loss on sale 200 Remaining Shares 1,000 Remaining value in investment 43,000 Dec 31 Fair value 39 unrealized loss per share 4 Total unrealized Loss Dec 31 4,000 Dec 31. Stock investment vAlue 39,000 2 LNC Common Stock Mar 1. No of Share Purchased 500 Value of stock 18,500 Purchase Price /Share 37.00 Sep 1. Dividend iNcome 1,000.00 Dec 31 Fair value 30.00 unrealized loss per share 7.00 Total unrealized Loss Dec 31 3,500 Dec 31. Stock investment vAlue 15,000 3 Apr 1. No of CRT Bonds 70 Price per bond 1,000 Value of Bond 70,000 Interest rate 8.00% 1-Oct Interest Income 2,800 1-Oct Sales proceeds 75,700 Gain on sale 5,700 Journal Entries date Account title Dr $ Cr $ Feb 1. Cash 51,600 Investment in Stock 51,600 Jul 1. Dividend Income (P/l Income a/c) 960 Cash 960 Aug 1. Investment 8,600 Loss on Sale of investment (p/L expense) 8,400 Cash 200 Mar 1. Cash 18,500 Investment in Stock 18,500 Sep 1. Dividend Income (P/l Income a/c) 1,000 Cash 1,000 Apr 1. Cash 70,000 Investment in Debt 70,000 1-Oct Interest Income (p/l income) 2,800 Cash 2,800 1-Oct Investment in Debt 70,000 Gain on Sale of Investment (p/l income) 5,700 Cash 75,700 Dec 31 . Adjustment Entries Dec 31. Investment in Stock -stk ALF 4,000 Investment in Stock -Stk LNC 3,500 Unrealized Foreign exchange Loss (p/l expense a/c) 7,500 Investment in Stock Ledger Date Details Amt Dr $ Date Details Amt Cr $ Feb 1. To Cash 51,600 Aug 1. By sale 8600 Mar 1. To Cash 18,500 Dec 31. Bu unrealized forx loss 7500 31-Dec Balance 54,000 Investment in Debt Apr 1. To Cash 70,000 1-Oct By Sales 70,000 Balance sheet Amounts of Investments as on 31-12-2014 Catgory : Current Assets Investments held for Trading Details No Of shares Value $ Investment in Stock ALF 1,000 39,000 Investment in Stock LNC 500 5,000
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