Question

Journalize stock investment transactions and show statement presentation.

(LO 2, 3)

The following securities are in Frederick Company's portfolio of long-term available-for-sale securities at December 31, 2017.

	Cost
1,000 shares of Willhite Corporation common stock	$52,000
1,400 shares of Hutcherson Corporation common stock	84,000
1,200 shares of Downing Corporation preferred stock	33,600

On December 31, 2017, the total cost of the portfolio equaled total fair value. Frederick had the following transactions related to the securities during 2018.

Jan.	20	Sold all 1,000 shares of Willhite Corporation common stock at $55 per share.
	28	Purchased 400 shares of $70 par value common stock of Liggett Corporation at $78 per share.
	30	Received a cash dividend of $1.15 per share on Hutcherson Corp. common stock.
Feb.	8	Received cash dividends of $0.40 per share on Downing Corp. preferred stock.
	18	Sold all 1,200 shares of Downing Corp. preferred stock at $27 per share.
July	30	Received a cash dividend of $1.00 per share on Hutcherson Corp. common stock.
Sept.	6	Purchased an additional 900 shares of $10 par value common stock of Liggett Corporation at $82 per share.
Dec.	1	Received a cash dividend of $1.50 per share on Liggett Corporation common stock.

At December 31, 2018, the fair values of the securities were:

Hutcherson Corporation common stock	$64 per share
Liggett Corporation common stock	$72 per share

Instructions

(a)  

Prepare journal entries to record the transactions.

Loss on sale of stock investment $1,200

(b)  

Post to the investment accounts. (Use T-accounts.)

(c)  

Prepare the adjusting entry at December 31, 2018 to report the portfolio at fair value.

Unrealized loss $5,800

(d)  

Show the balance sheet presentation at December 31, 2018, for the investment-related accounts.

Answer 1

(a) Prepare journal entries to record the transactions

Date	General Journal	Debit	Credit
Year 2018
Jan, 20	Cash	55,000
	Gain on sale of Investment		3,000
	Investment		52,000
	(Sold all 1,000 shares of Willhite Corporation common stock at $55 per share) Cash = 1,000*55
Jan 28	Investment	31,200
	Cash		31,200
	(Purchased 400 shares of $70 par value common stock of Liggett Corporation at $78 per share.) Investment = 400*78
Jan 30	Cash	1,610
	Dividend Income		1,610
	(Received a cash dividend of $1.15 per share on Hutcherson Corp. common stock) Dividend Income = (1,400 *1.15)
Feb, 8	Cash (1,200 *0.40)	480
	Dividend Income		480
	(Received cash dividends of $0.40 per share on Downing Corp. preferred stock) Dividend Income = (1,200 *0.40)
Feb, 18	Cash (1,200 *27)	32,400
	Loss on sale of investment	1,200
	Investment		33,600
	(Sold all 1,200 shares of Downing Corp. preferred stock at $27 per share.) Cash Sale = (1,200 *27)
July, 30	Cash	1,400
	Dividend Income		1,400
	(Received a cash dividend of $1.00 per share on Hutcherson Corp. common stock) Dividend Income = (1,400 *1.00)
Sep, 6	Investment	73,800
	Cash		73,800
	(Purchased an additional 900 shares of $10 par value common stock of Liggett Corporation at $82 per share) Investment Value = (900 * 82)
Dec 1	Cash	1,950
	Dividend Income		1,950
	(Received a cash dividend of $1.50 per share on Liggett Corporation common stock.) Total stock = 400+900 =1,300 Dividend Income =1,300*1.50

2. Post transactions to T-Accounts

Investment
1/1 beginning balance	169,600	1/20	52,000
1/28	31,200	2/18	33,600
9/6	73,800
12/31 Ending Balance	189,000

3. Calculation of Unrealized gain/(Loss)

Description	Hutcherson Corporation	Liggett Corporation
Total Common stock	1,400	1,300
Book Value	$84,000	$31,200+$73,800 = $105,000
Fair Value per stock	64	72
Total Fair value (Common stock * fair value per stock)	89,600	93,600
Unrealized gain/(Loss) Fair value – Book Value	5,600	(11,400)

Net unrealized loss = 11,400 – 5,600 =$5,800

Adjusting entry at December 31, 2018 to report the portfolio at fair value.

Dec 31, 2018	Unrealized loss	5,800
	Investment		5,800

(d) Show the balance sheet presentation at December 31, 2018, for the investment-related accounts.

Balance Sheet	Amount in $
Assets
Long-term Investment
long-term available-for-sale securities:
1,400 shares of Hutcherson corporation common stock	89,600
1,300 shares of Liggett corporation common stock	93,600
Liabilities
Shareholders’ equity
Net Income/(Loss)	360

Net Income
Dividend Income
1/30	1,610
2/8	480
7/30	1,400
12/1	1,950
Total Income	5,440
Less: Unrealized loss	(5,800)
Net Income/(Loss)	(360)