Hockory Holdings, Inc. invests in various companies\' stocks with the intent of

Question

Hockory Holdings, Inc. invests in various companies' stocks with the intent of receiving both income and growth in value of the companies over time. The company made the following investments during 20X6.

REQUIRED:(1)Prepare all required journal entries, in proper general journal form, to record the above information for the year ending December 31, 20X6. Round all calculations to the nearest while dollar. Omit explanations.

(2)Prepare the sections of the banlance sheet, in proper form, to reflect the effect of the above information for the year ending December 31, 20X6.

(3)Show the impact of the above information on the income statement for the year ending December 31, 20X6.

Jan. 5 Purchased 500 shares of Company A common stock for $15,500. The company expects to sell these shares within one year. Feb. 1 Purchased 700 shares of Company B common stock for $49,000. The company intends to hold these shares as a long term investment. June 1 Purchased 100, 8% bonds of Company C at a price to yield 10%. The bonds are due on June 1, 20Y1 and pay interest semiannually on June 1 and December 1 of each year. The face value of each bond is $1,000. The company intends to hold these bonds to maturity. The conpany use the effective in terest method for amortization purposes. July 31 Received a dividend on the company B stock in the amount of $1,000. Sept. 1 Company A announced and distributed a 2 for 1 stock split. Oct. 1 Sold 400 shares of Company A stock for $8,000. Nov. 1 Purchased 1,000 shares of Company D stock for $20 per share plus a $100 commission. The company intends to hold these shares as a long term investment. Dec. 1 Received the semiannual interest on the Company C bonds. Dec. 31 Prepared all adjusting entries required at year end. The quoted market prices for each investment on this date were as follows: Company A stock, $18; Company B stock, $83; Company C bonds, 101; and Company D stock, $17.50.

Explanation / Answer

Journal Entry Jan-05 Short term investment in sahres             15,500 To cash A/C         15,500 Feb-01 Long term investment in sahres             49,000 To cash A/C         49,000 Jun-01 Investment in Long term Bond           100,000 Premium on bonds             10,000 To Cash       110,000 Jul-31 Cash A/C dr.               1,000 To Dividend Income           1,000 Sep-01 No Entry Oct-01 Cash A/c Dr.               8,000 Loss on shares A/C dr               4,400 To Short term investment in shares         12,400 Nov-01 Long term investment in sahres 20000 Commision on purchase of Shares 100 To Cash A/C 20100 Dec-31 Cash A/C dr. 400 To interest A/C 368 To Premuim on Bonds 32 Dec-31 Loss on revalution 93700 Long term Investment in B Shares 9100 To short term invesment in A shares 1300 To Investment in long terms Bond 89900 To profit on revaluation 9100 To Long term Investment in D Shares 2500

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