While reviewing the March 31, 2018, balance sheet of Business Solutions, Santana

Question

While reviewing the March 31, 2018, balance sheet of Business Solutions, Santana Rey notes that the business has built a large cash balance of S68,072 Its most recent bank money market statement shows that the funds are earning an annualized return of 075% Rey decides to make several investments with the desire to earn a higher return on the idle cash balance Accordingly, in April 2018 Business Solutions makes the following investments in trading securities 10 points Apr. 16 Purchases 5se shares of Johnson & Johnson stock at $47 per share plus a $330 commission. Apr. 30 Purchases 270 shares of Starbucks Corporation at $23 per share plus a $199 comission eBook Print On June 30, 2018, the per share market price (fair value) of the Johnson & Johnson shares is $52 and the Starbucks shares is $20 seterences Required: 1. Prepare journal entries to record the April purchases of trading securities by Business Solutions 2. On June 30, 2018, prepare the adjusting entry to record any necessary fair value adjustment to its portfolio of trading securities Complete this question by entering your answers in the tabs below Required 1 Required 2 Prepare journal entries to record the April purchases of trading securities by Business Solutions View transaction list Journal entry worksheet

Explanation / Answer

Solution:

Part 1 --

It is the problem related to purchase of marketable securities (i.e. Short term investment)

When marketable securities are purchased “Marketable Securities Account” is debited and Cash account is credited. The transaction is recorded at cost including any brokerage commission aid to acquire the securities.

Hence, following journal entry is to be passed

Date

General Journal

Debit

Credit

Apr.16

Marketable Securities Account - Johnson & Johnson Stock

(550*47 + 330)

$26,180

Cash

$26,180

Apr.30

Marketable Securities Account - Starbucks Corporation

(270*23 + 190)

$6,400

Cash

$6,400

Part 2 –

Date

General Journal

Debit

Credit

June.30

Marketable Securities Account

$1,420

Unrealized Holding Gain

$1,420

(Fair Value of Johnson & Johnson Stock = 550 Shares x 52 = $28,600

Unrealized Holding Gain = 28,600 - 26,180 = $2420

(Fair Value of Starbucks Corporation Stock = 270 Shares x 20 = $5,400

Unrealized Holding Loss = 6400 - 5400 = 1,000

Net Unrealized Holding Gain/(loss) = Gain 2420 + Loss 1000 = Gain 1420

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Date

General Journal

Debit

Credit

Apr.16

Marketable Securities Account - Johnson & Johnson Stock

(550*47 + 330)

$26,180

Cash

$26,180

Apr.30

Marketable Securities Account - Starbucks Corporation

(270*23 + 190)

$6,400

Cash

$6,400

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