Amalgamated General Corporation is a consulting firm that also offers financial
ID: 2476877 • Letter: A
Question
Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2013 and the first month of 2014. The only securities held by Amalgamated at October 1 were $60 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31. 2013 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $64 million as a speculative investment to be sold under suitable circumstances. 31 Received semiannual interest of $3.0 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $42 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $52 million because rising interest rates are expected to cause their fair value to continue to fall. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $90 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U. S. Treasury bonds for $6.2 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $56 million as trading securities, hoping to earn profits on short-term differences in prices. 23 Sold the Treasury bonds for $6.8 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $30.50 per share and $15.00 per share for the NXS Corporation common. The fair values of the bond investments were $61.7 million for Household Plastics Corporation and $17.3 million for Holistic Entertainment Enterprises. 2014 Jan. 7 Sold the NXS Corporation common shares for $50 million.
Explanation / Answer
Answer:
2013
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $64 million as a speculative investment to be sold under suitable circumstances.
Dr investment 64,000,000
Cr Cash 64,000,000
31 Received semiannual interest of $3 million from the Kansas Abstractors bonds.
Dr Cash 3,000,000
Cr Investment revenue 3,000,000
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $42 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
Dr Investment 42,000,000
Cr Cash 42,000,000
1 Sold the Kansas Abstractors bonds for $52 million because rising interest rates are expected to cause their fair value to continue to fall.
Dr Cash 52,000,000
Dr Loss on sale of investment 8,000,000 (52,000,000 - 60,000,000)
Cr Investment 60,000,000
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $90 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
Dr Investment 90,000,000
Cr Cash 90,000,000
20 Purchased U. S. Treasury bonds for $6.2 million as trading securities, hoping to earn profits on short-term differences in prices
Dr Investment 6,200,000
Cr Cash 6,200,000
21 Purchased 4 million common shares of NXS Corporation for $56 million as trading securities, hoping to earn profits on short-term differences in prices.
Dr Investment 56,000,000
Cr Cash 56,000,000
23 Sold the Treasury bonds for $6.8 million.
Dr Cash 6,800,000
Cr Investment 6,200,000
Cr Gain on sale of investment 600,000
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
Dr Cash 3,000,000
Cr Investment Revenue 3,000,000
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $30.50 per share and $15.00 per share for the NXS Corporation common. The fair values of the bond investments were $61.7 million for Household Plastics Corporation and $17.3 million for Holistic Entertainment Enterprises.
Accrued interest:
Dr Investment Revenue Receivable--Holistic Entertainment 700,000 ($42,000,000 x 10% x2/12)
Dr Investment Revenue Receivable--Household Plastic 900,000 ($90,000,000 x 12% x 1/12)
Cr Investment Revenue 1600,000
Revaluations:
Dr Net unrealized holding gains and losses 3,000,000 (2,000,000 x $30.50 - 64,000,000)
Cr Fair value adjustment 3,000,000
Dr Fair value adjustment 4,000,000
Cr Net unrealized holding gains and losses 4,000,000
Closing entry:
Dr Net unrealized holding gains and losses 4,000,000
Dr Investment revenue 7,600,000 ($3,000,000 + 3,000,000 + 1600,000)
Dr Gain on sale of investments 600,000
Cr Loss on sale of investments 8,000,000
Cr Income summary 4,200,000
2014 Jan. 7 Sold the NXS Corporation common shares for $50 million.
Dr Cash 50,000,000
Dr Loss on sale of investment 6,000,000
Cr Investment in NXS common shares 56,000,000
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