Question

Metlock Corporation made the following cash purchases of securities during 2017, which is the first year in which Metlock invested in securities. 1. On January 15, purchased 10,150 shares of Sanchez Company’s common stock at $46.90 per share plus commission $2,130. 2. On April 1, purchased 5,150 shares of Vicario Co.’s common stock at $72.80 per share plus commission $3,520. 3. On September 10, purchased 7,150 shares of WTA Co.’s preferred stock at $37.10 per share plus commission $5,060. On May 20, 2017, Metlock sold 4,150 shares of Sanchez Company’s common stock at a market price of $49 per share less brokerage commissions, taxes, and fees of $4,000. The year-end fair values per share were Sanchez $42, Vicario $77, and WTA $39.20. In addition, the chief accountant of Metlock told you that the corporation plans to hold these securities for the long-term but may sell them in order to earn profits from appreciation in prices. The equity method of accounting is not appropriate for these stock purchases.

Prepare the journal entries to record the above three security purchases.

Prepare the journal entry for the security sale on May 20.

Compute the unrealized gains or losses. (Round answer to 0 decimal places, e.g. 2,500.)

Prepare the adjusting entries for Metlock on December 31, 2017.

Answer 1

a) The journal entries to record the above three security purchases:

Date	Particular	Debit	Credit
January 15	Available for sales securities ( 10150*$46.90= $476,035 + $2,130= $478,165	$478,165
	Cash		$478,165
	(Being shares purchased of Sanchez company stock at $46.90 per share plus commission $2,130)
April 1	Available for sale securities (5,150*$72.80 = $374,920 + $3,520= $	$378,440
	Cash		$378,440
	( being 5,150 share of Vicario Co. @$46.90 per share plus commission of $3,520)
September 10	Available for sale securities (7150*$37.10 = $265,265 + $5,060 =$270,325	$270,325
	Cash		$270,325
	( being 7,150 share purchase of WTA [email protected] share plus commission of $5,060)

b) Journal entry for security sale on May 20.

Date	Particular	Debit	Credit
May 20	Cash( 4150*49= $203,350 )	$203,350
	Available for sale securities(4150* $46.90)		$194,635
	Cash(expenses)		$4,000
	Gain on sale of shares( balancing figure)		$4,715
	( being 4150 share sold @ $49)

c) The unrealized gain or losses:

	Sanchez	Vicario	WTA
Market value- December 31	$42	$77	$39.20
Shares	6,000	5,150	7,150
Total fair value	$252,000	$396,550	$280,280
Book balance	$281,400	$378,440	$270,325
Unrealized gain( loss)	($29,400)	$18,110	$9,955

d)The adjusting entry for Medlock on December 31:

December 31	Unrealized loss on securities( $18,110 +$9,955 - $29,400)	$1,335
	Expenses		$1,335
	( being net decrease in value)