Question

Problem 12-9 Securities held-to-maturity; securities available for sale, trading securities and equity investments [LO12-1, 12-2, 12-3, 12-4, 12-5]

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 $63 million.
		31		Received semiannual interest of $3.3 million from the Kansas Abstractors bonds.
Nov.		1		Purchased 10% bonds of Holistic Entertainment Enterprises at their $120 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 $49 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 $40 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 $7.5 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 $8.1 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 $28.50 per share and $15.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.6 million for Household Plastics Corporation and $18.6 million for Holistic Entertainment Enterprises.

2019
Jan.		7		Sold the NXS Corporation common shares for $52 million.

Required:
Prepare the appropriate journal entry for each transaction or event. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

• 1

  Record the purchase of 2 million preferred shares of Millwork Ventures Company for $63 million.

• 2

  Record the receipt of semiannual interest of $3.3 million from the Kansas Abstractors bonds.

• 3

  Record the purchase of 10% bonds of Holistic Entertainment Enterprises at their $120 million face value.

• 4

  Record the entry to adjust to fair value on the date of sale of the Kansas Abstractor bonds.

• 5

  Record the sale of the investment in Kansas Abstractors bonds.

• 6

  Record the purchase of 12% bonds of Household Plastics Corporation at their $40 million face value.

• 7

  Record the purchase of U.S. Treasury bonds for $7.5 million.

• 8

  Record the purchase of 4 million common shares of NXS Corporation for $54 million.

• 9

  Record the entry to adjust to fair value on the date of sale of the U.S. Treasury bonds.

• 10

  Record the sale of the Treasury bonds for $8.1 million.

• 11

  Record the receipt of cash dividends of $3 million from the Millwork Ventures Company preferred shares.

• 12

  Record the accrued interest.

• 13

  Record the entry to adjust to fair value for the Millwork Ventures preferred stock.

• 14

  Record the entry to adjust to fair value for the NXS Corporation common shares.

• 15

  Record the entry to adjust to fair value on the date of sale of the NXS Corporation common shares.

• 16

  Record the sale of the NXS Corporation common shares for $52 million.

Answer 1

1. Record the purchase of 2 million preferred shares of Millwork Ventures Company for $63 million.

Investment in preferred shares (Millwork Ventures Company) $63,000,000
      Cash                                                                                                                       $63,000,000

2. Record the receipt of semiannual interest of $3.3 million from the Kansas Abstractors bonds.

Cash       $3,300,000
           Investment Revenue   $3,300,000

3. Record the purchase of 10% bonds of Holistic Entertainment Enterprises at their $120 million face value.

Investment in Bonds (Holistic Entertainment Enterprises)   120,000,000
                Cash                                                                                                      120,000,000

AMALGAMATED GENERAL CORPORATION
General Journal
Date	Particulars	Debit (S)	Credit ($)
	No Entry
Nov,1	Cash	120,000,000
	Loss on sale of investments	49,000,000
	Investment in Kansas Abstractors bonds		169,000,000
	(Being Kansas bonds sold and loss accounted for)
Dec, 23	Cash	8,100,000
	Investment in US Treasury bonds	7,500,000	8,100,000
	Gain on sale of investments		600,000
	(Being sale of treasury bonds and gains accounted for)
Dec, 29	Cash	3,000,000
	Investment revenue		3,000,000
	(Being cash dividend received from Millwork ventures)

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