Godfrey Corporation holds, as a long-term investment, available-for-sale securit
ID: 2585360 • Letter: G
Question
Godfrey Corporation holds, as a long-term investment, available-for-sale securities costing $71,000. At December 31, 2017, the fair value of the securities is $64,400. Show the financial statement presentation of the available-for-sale securities and related accounts. Assume the available-for-sale securities are noncurrent
Jenek Corporation had the following transactions pertaining to debt investments.
1.Purchased 85 9%, $1,800 Leeds Co. bonds for $153,000 cash on January 1, 2017. Interest is payable annually on January 1.
2.Accrued interest on Leeds Co. bonds on December 31, 2017.
3.Received interest on Leeds Co. bonds on January 1, 2018.
4.Sold 51 Leeds Co. bonds for $100,980 on January 1, 2018.
Journalize the transactions.
GOLDFREY CORPORATION Balance Sheet (Partial) December 31, 2017 LessExplanation / Answer
Answer: Journal Entries
Date
Account Titles and Explanation
Debit ($)
Credit ($)
January 1, 2017
9%, Leeds Co. bonds
153,000
Cash
153,000
Purchased 85 9%, $1,800 Leeds Co. bonds for $153,000 on cash
December 31, 2017
Interest Receivable*
13,770
Interest revenue
13,770
Accrued interest on Leeds Co. bonds
December** 31, 2017
Unrealized loss –Available for sale securities
6,600
Investment in Available for sale securities
6,600
Available for sale securities adjusted to fair value at the end of year
January 1, 2018
Cash
13,770
Interest Receivable
13,770
Received interest on Leeds Co. bonds
January 1, 2018
Cash
100,980
Gain on sale of debt investment***
9,180
9%, Leeds Co. bonds
91,800
Sold 51 Leeds Co. bonds on profit
*Interest Receivable= Amount of investment X Rate of interest
= $ 153,000 X 9/100
= $ 13,770
** As per U.S. GAAP investments in Available for sale securities (trading securities) should be reported on the balance sheet at fair value. Therefore, if Available for sale securities are worth $ 71,000 at December 31, 2017, Godfrey Corporation must adjust the reported value from $ 71,000 to $64,400 by reporting a loss. The loss here is termed as “unrealized” to depict that the value of the asset has decreased but no final sale has yet taken place. The loss is not certain; the value might go up before the securities are sold. However, the unrealized loss is recognized and reported under stockholders’ equity.
Unrealized loss –Available for sale securities = Cost of securities – Fair value of securities
= $71,000- $64,400
= $ 6,600
***Gain on sale of debt investment= Selling price – Purchase price
= $ 100,980 – (51 X $ 1800)
= $ 100,980- $ 91,800
= $ 9,180
Answer:
Godfrey Corporation
Balance Sheet (Partial)
December 31, 2017
Asset
Amount ( $ )
Long term assets
Available-for-sale securities (at fair value)
64,400
9%, Leeds Co. bonds : 153,000
Add: Interest Receivable: 13,770
166,770
Total of assets
231,170
Liabilities
Stockholders’ Equity
Less: Unrealized loss –Available for sale securities
(6,600)
Total of liabilities and stockholders’ equity
(6,600)
Note:
Journal entries on January 1, 2018 regarding receipt of interest and sale of 9%, Leeds Co. bonds will not be recorded in the above balance sheet as these transactions have taken place after year end that is December 31, 2017.
As the balance sheet is partial the balance of asset and liability will not be equal.
Date
Account Titles and Explanation
Debit ($)
Credit ($)
January 1, 2017
9%, Leeds Co. bonds
153,000
Cash
153,000
Purchased 85 9%, $1,800 Leeds Co. bonds for $153,000 on cash
December 31, 2017
Interest Receivable*
13,770
Interest revenue
13,770
Accrued interest on Leeds Co. bonds
December** 31, 2017
Unrealized loss –Available for sale securities
6,600
Investment in Available for sale securities
6,600
Available for sale securities adjusted to fair value at the end of year
January 1, 2018
Cash
13,770
Interest Receivable
13,770
Received interest on Leeds Co. bonds
January 1, 2018
Cash
100,980
Gain on sale of debt investment***
9,180
9%, Leeds Co. bonds
91,800
Sold 51 Leeds Co. bonds on profit
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