Question

1.

On December 31, Mars Co. had the following portfolio of stock investments with insignificant influence. Mars had no stock investments in prior periods. Stock Investments Cost Fair Value Apple stock $ 6,500 $ 8,600 Chipotle stock 3,300 1,800 Under Armour stock 12,800 14,300 Prepare the December 31 adjusting entry to report these investments at fair value. Record the year-end adjustment to fair value, if any.

2.

Carlsville Company began operations in the current year and had no prior stock investments. The following transactions are from its short-term stock investments with insignificant influence. Prepare journal entries to record these transactions. On December 31, prepare the adjusting entry to record the fair value adjustment for the portfolio of stock investments. July 22 Purchased 1,600 shares of Hunt Corp. at $28 per share. Sept. 5 Received a $2 cash dividend for each share of Hunt Corp. Sept. 27 Purchased 3,400 shares of HCA at $20 per share. Oct. 3 Sold 1,600 shares of Hunt at $23 per share. Oct. 30 Purchased 1,200 shares of Black & Decker at $60 per share. Dec. 17 Received a $3 cash dividend for each share of Black & Decker. Dec. 31 Fair value of the short-term stock investments is $144,000.

3.

On February 15, paid $170,000 cash to purchase GMI's 90-day short-term notes at par, which are dated February 15 and pay 8% interest (classified as held-to-maturity). On March 22, bought 700 shares of Fran Inc. common stock at $34 cash per share. Cancun's stock investment results in it having an insignificant influence over Fran. On May 15, received a check from GMI in payment of the principal and 90 days' interest on the notes purchased in part a. On July 30, paid $51,000 cash to purchase MP Inc.'s 7% , six-month notes at par, dated July 30 (classified as trading securities). On September 1, received a $0.66 per share cash dividend on the Fran Inc. common stock purchased in part b. On October 8, sold 350 shares of Fran Inc. common stock for $40 cash per share. On October 30, received a check from MP Inc. for three months’ interest on the notes purchased in part d. Prepare journal entries to record the above transactions involving both the short-term and long-term investments of Cancun Corp., all of which occurred during the current year. (Use 360 days in a year. Do not round your intermediate calculations. Round your answers to the nearest whole dollar.)

Answer 1

1) Ans:-

Journal Entry
Date	Accounts/Title	Debit	Credit
31-Dec	Fair Value Adjustment	2,100.00
	Unrealised Gain or Loss (Income)		2,100.00
	To record Adjustment of stock invest

Working Notes:-
Portfolio of stock Investment December 31,20XX
Stock investments	Cost	Fair value	Unrealised Gain/Loss
Apple stock	6,500	8,600	2,100
Chipotle stock	3,300	1,800	-1,500
Under Armour stock	12,800	14,300	1500
Total of portfolio	22,600	24,700	2,100

2)Ans:-

Date	General Journal	Debit	Credit
July 22	Investment in Hunt Corp (1600*28)	44,800
	Cash		44,800
Sep 5	Cash (1600*2)	3,200
	Dividend revenue		3,200
Sep 27	Investment in HCA (3400*20)	68,000
	Cash		68,000
Oct 3	Cash	36,800
	Loss on sale of investment	8,000
	Investment in Hunt Corp		44,800
Oct 30	Investment in Black & Decker (1200*60)	72,000
	Cash		72,000
Dec 17	Cash (1200*3)	3600
	Dividend revenue		3600
Dec 31	Fair value adjustment (144000-140,000)	4,000
	Unrealized holding gain on investment		4,000

3) Ans:-

Date	Account title and Explanation	Debit	Credit
15-Feb	Short term investments	170,000
	To Cash A/c		170,000
	(To record investment)
22-Mar	Long term investments (700*34)	23,800
	To Cash A/c		23,800
	( To record share purchase)
15-May	Cash	174,250
	To Short term investments		170,000
	To Interest revenue A/c (170000*10%*3/12)		4,250
	( To record the receipt of note installment)
30-Jul	Short term investments -trading	51,000
	To cash A/c		51,000
	(To record the purchase of the note)
1-Sep	Cash (700*0.66)	462
	To Dividend revenue A/c		462
	( To record dividend revenue)
8-Oct	cash (350*40)	14000
	To Long term investments A/c(23800/2)		11,900
	To Gain on sale of the shares A/c		2100
	( To record the sale of the shares)
30-Oct	Cash (51000*7%*3/12)	892.50
	To Interest revenue A/c		892.50
	( To record the interest revenue receipt)