ACCOUNTING Chapters 10-13 Appendix D The following information applies to the qu

Question

ACCOUNTING Chapters 10-13 Appendix D The following information applies to the questions displayed below] On August 4, 2014, Cable Corporation purchased 2,600 shares of Satre Company for $98,800. The following information applies to the falr value of Satre Company Per Share 12/31/2014 12/31/2015 12/31/2016 S 50 42 34 Satre Company declares and pays cash dividends of $4 per share on June 1 of each year. Required: 1. Prepare journal entries to record the facts in the case, assuming that Cappio considers the shares to be available-for-sale securities TIP: Net unrealized losses/gains on available-for-sale secunities are reported in stockholders' equity.(f no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet 3 Record the purchase of 2,600 shares of Maxwell Company for $98,800. The company considers the shares to be available-for-sale securities

Explanation / Answer

Note:

1. The entries remain same for unrealized gains/losses for both available for sale securities and trading securities. The only difference is that in case of trading securities the unrealized losses/gains are tranferred to income statement at the end of an accounting period by passing the following entries

Unrealized gains a/c Dr.

To Income Statement

OR

Income Statement A/c Dr.

To unrealized losses A/c

In case of available for sale securities, the unrealized gains/losses are shown as a separate iten in stockholders equity.

2. Purchase price of shares = 98,800/2,600 = 38

Date Particulars Debit Credit Aug 4, 2014 Satre Company Securities A/c Dr. 98,800 To Cash A/c 98,800 Dec 31,2014 Satre Company Securities A/c Dr. 31,200 To Unrealized gain on securities 31,200 Gain = 2600*(50-38) Jun 1, 2015 Cash A/c Dr. (4*2,600) 10,400 To Dividend Income A/c 10,400 Dec 31, 2015 Unrealized loss on securities A/c Dr 20,800 To Satre Company Securities A/c 20,800 loss = 2600*(50-42) Jun 1, 2016 Cash A/c Dr. 10,400 To Dividend Income 10,400 Dec 31, 2016 Unrealized loss on securities a/c Dr. 10,400 To Satre Company securities A/c 10,400 loss = 2600*(42-34)

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