Barry, Hank, and Babe form a company named Long Ball Investments, hoping to find

Question

Barry, Hank, and Babe form a company named Long Ball Investments, hoping to find that elusive home run stock. A new clothing company by the name of Major League Apparel has caught their eye. Major League Apparel has two classes of stock authorized: 5%, $10 par preferred and $1 par value common. Long Ball Investments has the following transactions during the year. None of the investments are large enough to exert a significant influence. Assume that the securities are available-for-sale securities.

January 2                   Purchase 1,000 shares of Major League common stock for $63 per share

February 14 Purchase 500 shares of Major League preferred stock for $11.30 per share

May 15 Sell 200 shares of Major League’s common stock for $55 per share

December 30 Receive a cash dividend on Major League’s common stock of $0.43 per share and preferred stock of $0.53 per share

December 31 The fair values of the common and preferred shares are $65.30 and $12.60, respectively

Required:

1. Record each of these investment transactions. (Hint: Preferred stock transactions are recorded like common stock transactions, but preferred stock has no voting rights and therefore ownership provides no influence.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Calculate the balance in the Investments account as of December 31

Explanation / Answer

1. Record each of these investment transactions. (Hint: Preferred stock transactions are recorded like common stock transactions, but preferred stock has no voting rights and therefore ownership provides no influence.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

January 2                   Purchase 1,000 shares of Major League common stock for $63 per share

February 14 Purchase 500 shares of Major League preferred stock for $11.30 per share

May 15 Sell 200 shares of Major League’s common stock for $55 per share

December 30 Receive a cash dividend on Major League’s common stock of $0.43 per share and preferred stock of $0.53 per share

December 31 The fair values of the common and preferred shares are $65.30 and $12.60, respectively

2)

Balance in the Investments account as of December 31 = Investment in Common Stock + Investment in Prefered Stock

Balance in the Investments account as of December 31 = 800*65.30 + 500*12.60

Balance in the Investments account as of December 31 = $ 58,540

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