Question
In: Accounting
On December 31, 2018, Tube Associates owned the following securities, held as a long-term investment. The...
On December 31, 2018, Tube Associates owned the following securities, held as a long-term investment. The securities are not held for influence or control of the investee.
Common Stock Shares Cost
A Co. 2,000 $40,000
B Co. 5,000 $50,000
C Co. 1,500 $45,000
On December 31, 2019, the total fair value of the securities was equal to its cost. In 2019, the following transactions occurred.
Aug.1: Received $1.50 per share cash dividend on A. Co. common stock.
Sept. 1: Sold 2,000 shares of B. Co. common stock for cash at $18 per share.
Oct. 1: Sold 500 shares of A. Co. common stock for cash at $25 per share.
Nov. 1: Received $1 per share cash dividend on C. Co. common stock.
Dec. 15: Received $1.25 per share cash dividend on A Co. common stock.
31: Received $1 per share annual cash dividend on B Co. common stock.
At December 31, the fair values per share of the common stocks were: A. Co. $25, B. Co. $12, and C. Co. $25.
Instructions
(a) Journalize the 2019 transactions and post to the account Stock Investments.
(b) Prepare the adjusting entry at December 31, 2019, to show the securities at fair value. The stock should be classified as available-for-sale securities.
(c) Show the balance sheet presentation of the investments at December 31, 2019.
Solutions
Expert Solution
| JOURNAL ENTRY | |||||||
| DATE | ACCOUNT TITLE | DEBIT | CREDIT | ||||
| August,1 | Cash | $3,000 | (1.5*2000) | ||||
| Dividend Income-Company A | $3,000 | ||||||
| September,1 | Cash | $36,000 | (2000*18) | ||||
| Investment in Securities-Company B | $20,000 | (2000*10) | |||||
| Realized gain from Securities-Company B | $16,000 | (2000*(18-10) | |||||
| October,1 | Cash | $12,500 | (500*25) | ||||
| Investment in Securities-Company A | $10,000 | (500*20) | |||||
| Realized gain from Securities-Company A | $2,500 | (500*(25-20) | |||||
| November,1 | Cash | $1,500 | (1*1500) | ||||
| Dividend Income-Company C | $1,500 | ||||||
| December,15 | Cash | $1,875 | (1.25*(2000-500) | ||||
| Dividend Income-Company A | $1,875 | ||||||
| December,31 | Cash | $3,000 | (1*(5000-2000) | ||||
| Dividend Income-Company B | $3,000 | ||||||
| ADJUSTING ENTRY | |||||||
| December,31 | Investment in Securities-Company A | $7,500 | (1500*(25-20) | ||||
| Unrealized Gain-Other Comprehensive Income-A | $7,500 | ||||||
| December,31 | Investment in Securities-Company B | $6,000 | (3000*(12-10) | ||||
| Unrealized Gain-Other Comprehensive Income-B | $6,000 | ||||||
| December,31 | Unrealized Loss-Other Comprehensive Income-C | $7,500 | (1500*(30-25) | ||||
| Investment in Securities-Company C | $7,500 | ||||||
| BALANCE SHEET PRESENTATION | |||||||
| Investment in Securities-Company A | $37,500 | (1500*25) | |||||
| Investment in Securities-Company B | $36,000 | (3000*12) | |||||
| Investment in Securities-Company C | $37,500 | (1500*25) | |||||
| Unrealized Gain-Other Comprehensive Income | $6,000 | ||||||
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