Question

Problem 15-4A Recording, adjusting, and reporting stock investments with insignificant influence LO P4

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Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short-term stock investments with insignificant influence.

Apr.		16		Purchased 8,000 shares of Gem Co. stock at $24.50 per share.
July		7		Purchased 4,000 shares of PepsiCo stock at $54.00 per share.
		20		Purchased 2,000 shares of Xerox stock at $17.00 per share.
Aug.		15		Received a(n) $0.90 per share cash dividend on the Gem Co. stock.
		28		Sold 4,000 shares of Gem Co. stock at $31.25 per share.
Oct.		1		Received a $1.80 per share cash dividend on the PepsiCo shares.
Dec.		15		Received a $1.05 per share cash dividend on the remaining Gem Co. shares.
		31		Received a $1.40 per share cash dividend on the PepsiCo shares.

Problem 15-4A Part 3

3. Prepare an adjusting entry to record the year-end fair value adjustment for the portfolio of short-term stock investments.

fair value for Gem Co. $107,000

fair value for Pepsi $205,000

fair value for Xerox $28,000

Answer 1

Adjusting entry to record the year-end fair value adjustment for the portfolio of short-term stock investments.

Date	Accounts	Debit ($)	Credit ($)
Dec 31	Unrealised loss equity	8000
	To Fair value adjustment-AFS		8000
	( to record year end fair value adjustment)

Wokings:

Particulars	Cost (Computed below)	Fair Value (Given)
Gem co	$ 98000	$ 107000
Pepsi co	$ 216000	$ 205000
Xerox	$ 34000	$ 28000
Total	$ 348000	$ 340000

Cost of Gem co = Purchase value - Book Value of sold shares = $ 196000 - $ 98000 = $ 98000 ( 8000 shares purchased and 4000 shares sold)

In this case Fair value of investment is less than cost of investments.

Therefore, Unrealised Loss = Cost - Fair Value = $ 348000 - $ 340000 = $ 8000

Date	Accounts	Debit	Credit
Apr-16	Short term investments-AFS (gem)	196000
	To Cash		196000
	( to record Purchase of 8,000 shares of Gem Co. stock at $24.50 per share)
Jul-07	Short term investments-AFS (pepsi)	216000
	To Cash		216000
	( to record Purchase of 4,000 shares of PepsiCo stock at $54.00 per share)
Jul-20	Short term investments-AFS (xerox)	34000
	To Cash		34000
	( to record Purchase of 2,000 shares of Xerox stock at $17.00 per share)
Aug-15	Cash	7200
	To Dividend revenue		7200
	( to record dividend revenue from Gem Co. stock)
Aug-28	Cash	125000
	Short term investments-AFS (gem)		98000
	Gain on sale of short term investments		27000
	( to record Sold 4,000 shares of Gem Co. stock at $31.25 per share)
Oct-01	Cash	7200
	To Dividend revenue		7200
	( to record dividend revenue from PepsiCo shares )
Dec-15	Cash	4200
	To Dividend revenue		4200
	( to record dividend revenue from Gem Co. stock)
Dec-31	Cash	2800
	Dividend revenue		2800
	( to record dividend revenue from PepsiCo shares )

Explanation:

1. Purchased 8,000 shares of Gem Co. stock at $24.50 per share

8000 Shares x $ 24.50 = $ 196000

2.Purchased 4,000 shares of PepsiCo stock at $54.00 per share

4000 shares x $ 54 = $ 216000

3.Purchased 2,000 shares of Xerox stock at $17.00 per share

2000 shrares x $ 17 = $ 34000

4.Received a(n) $0.90 per share cash dividend on the Gem Co. stock

8000 shares x $ 0.90 = $ 7200

5.Sold 4,000 shares of Gem Co. stock at $31.25 per share

Cash Received = 4000 shares x $ 31.25 = $ 125000

Book Value = 4000 shares x $ 24.50 = $ 98000

Sale value is morethan book value

Therefore,  Gain on sale of short term investments = Cash Received - Book Value = $ 125000 - $ 98000 = $ 27000

6.Received a $1.80 per share cash dividend on the PepsiCo shares

4000 shares x $ 1.80 = 7200

7.Received a $1.05 per share cash dividend on the remaining Gem Co. shares

Remaining shares = Purchased shares - Sold shares = 8000 - 4000 = 4000 shares

4000 shares x $ 1.05 = $ 4200

8.Received a $1.40 per share cash dividend on the PepsiCo shares

2000 shares x $ 1.40 = $ 2800

Kindly give positive rate if you satisfied with the answer