15-18A Classifying and accounting H_W for stock investments Mail 4 You Corporati

Question

15-18A Classifying and accounting H_W for stock investments Mail 4 You Corporation generated excess cash and invested in securities as follows: 2016 Jul. 2 Purchased 3,400 shares of Bravo, Inc. common stock at $11.00 per share. Mail 4 You holds the stock in its active trading account and plans to sell the stock within three months, when the company will need the cash for normal operations. Aug. 21 Received a cash dividend of $0.30 per share on the Bravo stock investment Sep. 16 Sold the Bravo stock for $14.80 per share. Oct. 8 Purchased 400 shares of Zigbo stock at $15.00 per share. The stock is held in the active trading account as Mail 4 You plans to hold the Zigbo stock for less than five months. Dec. 31 Zigbo stock's current market price is $5.00 per share.

Explanation / Answer

Part 1 - Classification of Investments

Both the Investments are Trading Investments. Since such investments are made in trading accounts and acquire less than 20% of ownership of outstanding voting stock.

Part 2 - Journal Entries

Part 3 - T-Accounts for Investment Assets

Short Term Investment

Cash

Presentation in Balance Sheet Extract

Date Accounts Title and Explanation Debit Credit July 2 Short Term Investment (3400*$11) $37400 Cash $37400 August 21 Cash ($0.3*3400) $1020 Dividend Revenue $1020 September 16 Cash ($14.8*3400) $50320 Short Term Investment ($11*3400) $37400 Profit on sale of Investment ($3.8*3400) $12920 October 8 Short Term Investment ($15*400) $6000 Cash $6000 December 31 Unrealized loss on investment ($15 - $5) * 400 $4000 Short Term Investment $4000

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