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

Question

Hickory 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. 1Purchased 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 eaclh year. The face value of each bond is $1,000. The company intends to hold these bonds to maturity. The company uses the effective interest method for amortization Sept. Company A announced and distributed a 2 for 1 stock split. Oct. Sold 400 shares of Company A stock for $8,000 Nov. Purchased 1,000 shares of Company D stock for $20 per share plus a S100 commission. The company intends to hold these shares as a long term investment. eReivl ie: ont: 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, S18; Company B stock, S83; Company C bonds, 101; and Company D stock, $17.50

Explanation / Answer

Answer: 1.

Journal entries

Jan 5.

Investment A/c Dr. 15500

To Bank/Cash A/c 15500

(Being Amount Invested In short terma Equity Share)

Feb 1

Investment A/c Dr. 49000

To Bank/Cash A/c 49000

(Being Amount Invested In long terma Equity Share)

Jun 1

Investment In Bond A/c Dr. 80000

To Bank/cash A/c 80000

(Being Long term bond purchased)

Working

July 31.

Bank A/c Dr. 1000

To Dividend A/c 1000

(Being Dividend Received)

Dividend A/c Dr. 1000

To Profit and Loss A/c 1000

(Being Dividend Income recognised In Profit And Loss a/c)

Sep: 1

No Entry of Bonus Share

Oct: 1.

Bank A/c dr. 8000

To Investment In B A/c 6200

To Profit on Sale of share A/c 1800

(Being Share Sale at profit )

Working of above

(15500/500+500)*400 = 6200

Sale Price 8000

Profit 8000-6200 1800

Profit on sale of share A/c Dr. 1800

To profit and Loss A/c 1800

(Being Income Recognised in Profit and Loss A/c)

Nov: 1.

Investment In share A/c Dr. 2000

Commission A/c Dr. 100

To Bank A/c 2100

(Being Share Purchased)

Profit and Loss A/c Dr. 100

To commission A/c 100

(Being Expesnes Booked in P/L)

Dec: 1.

Bank A/c Dr. 4000

To Interest Income A/c 4000

(Being Interest income Received)

Interest Income A/c Dr. 4000

To P/L 4000

(Being Interest Incoem recognised In P/L)

Dec 31.

Only Short term capital to be recognised on Market Value

Investment in Share A A/c 1500

To Profit and Loss A/c 1500

(Being Investment Mark to Market)

Answer: 2.

Answer: 3.

Face Value 1000 Int Rate 8% interest 80 Yeild 10% Price 800

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.