Question

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $55 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31.

2018
Oct.		18		Purchased 2 million preferred shares of Millwork Ventures Company for $62 million.
		31		Received semiannual interest of $2.2 million from the Kansas Abstractors bonds.
Nov.		1		Purchased 10% bonds of Holistic Entertainment Enterprises at their $36 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31.
		1		Sold the Kansas Abstractors bonds for $48 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously.
Dec.		1		Purchased 12% bonds of Household Plastics Corporation at their $80 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.
		20		Purchased U. S. Treasury bonds for $6.1 million as trading securities, hoping to earn profits on short-term differences in prices.
		21		Purchased 4 million common shares of NXS Corporation for $54 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale.
		23		Sold the Treasury bonds for $6.6 million.
		29		Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
		31		Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $29.00 per share and $15.50 per share for the NXS Corporation common. The fair values of the bond investments were $61.2 million for Household Plastics Corporation and $17.2 million for Holistic Entertainment Enterprises.

2019
Jan.		7		Sold the NXS Corporation common shares for $49 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Answer 1

JOURNAL ENTRY

PARTICULARS AMOUNT ($) AMOUNT($)

DR. CR.

OCT 18 Investment A/c 62000000

To Cash A/c 62000000

OCT 31 Cash A/c 2200000

To Investment Revenue A/c 2200000

NOV 1 Investment A/c 36000000

To Cash A/c 36000000

NOV 1 Cash A/c 48000000

Loss on sale of investment A/c 7000000

To Investment A/c 55000000

DEC 1 Investment A/c 80000000

To Cash A/c 80000000

DEC 20 Investment A/c 6100000

To Cash A/c 6100000

DEC 21 Investment A/c 54000000

To Cash A/c 54000000

DEC 23 Cash A/c 6600000   

To Investment A/c 6100000

To Gain on sale of Investment A/c 500000

DEC 29   Cash A/c 3000000

To Investment Revenue A/c 3000000

ACCRUED INTEREST:

DEC 31 Investment Revenue Receivable A/c 600000(36000000*10%*2/12)

  Investment Revenue Receivable A/c 800000 (80000000*12%*1/12)

To Investment Revenue A/c 1400000

REVALUATIONS:

Net Unrealized holding gains and lossesA/c 4000000(2000000*29-62000000)

To Fair value adjustment A/c 4000000

   Fair value adjustment A/c 8000000

To  Net Unrealized holding gains and lossesA/c 8000000

CLOSING ENTRY:

Net Unrealized holding gains and lossesA/c 8000000

  Investment Revenue A/c 6600000 (2200000+3000000+1400000)

Gain on sale of Investment A/c 500000

To Loss on sale of Investment A/c 7000000

To Income Summary A/c 8100000

Jan 7 Cash A/c 49000000

  Loss on sale of Investment A/c    5000000

To Investment in NXS common shares A/c    54000000