Hockory Holdings, Inc. invests in various companies\' stocks with the intent of
ID: 2475078 • Letter: H
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.
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.
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.
Explanation / Answer
Journalise
Date Particulars Debit Credit 5-Jan Investment In trading securities 15500 Cash 15500 1-Feb Investment in long term equity securities 49000 Cash 49000 1-Jun Investment in held to maturity securities 100000 Discount on bonds 20000 Cash 80000 Return on bonds is 8 % , i.e 8000 on face value we have purchased as return will be 10 % In order to have 10 % return we need to buy at 80000 31-Jul Cash 1000 Dividend Income 1000 1-Sep No entry as there is no cost incurred 1-Oct Cash 8000 Gain on sale of securities 3667 Investment in trading securities 4133 Total No. of shares in A Company after split off = 500 + 1000 , =1500 ( 2 for every 1 held) now total cost will pertain to 1500 units proportionate cost of 400 shares = (15500 /1500) x 400 1-Nov Investment in long term equity securities 20100 Cash 20100 Purchase cost will include 100 paid as commision 1-Dec Cash 4000.00 Discount on bonds Interest income Number of years to maturity are not provided Discount on bonds will be transferred to interest income each year as process of amortization 31-Dec Investment In trading securities 8433 Unrealised Gain on trading securities 8433 Proportionate cost of 1100 shares in hand = (15500 /1500) x1100 , = 11367 Market Value = 1100 x 18 , =19800 31-Dec Investment in long term equity securities 9100 Unrealised Gain on long term equity securities 9100 Working for company b investment Cost of investment = 49000 Market Value = 700 shares x 83, = 58100 31-Dec Unrealised Loss on long term equity securities 2600 Investment in long term equity securities 2600 Working for company d investment cost of investment = 20100 Market Value = 1000 shares x 17.50 , =17500Related Questions
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