Question
In: Accounting
While reviewing the March 31, 2020, balance sheet of Business Solutions, Santana Rey notes that the...
While reviewing the March 31, 2020, balance sheet of Business
Solutions, Santana Rey notes that the business has built a large
cash balance of $68,146. Its most recent bank money market
statement shows that the funds are earning an annualized return of
0.64%. S. Rey decides to make several investments with the desire
to earn a higher return on the idle cash balance. Accordingly, in
April 2020, Business Solutions makes the following investments in
trading securities
| Apr. | 16 | Purchases Johnson & Johnson bonds for $8,000. | ||
| Apr. | 30 | Purchases notes of Starbucks for $4,200. |
On June 30, 2020, the fair value of the Johnson & Johnson bonds
is $14,700 and the Starbucks notes is $3,700.
Required:
1. Prepare journal entries to record the April
purchases of trading securities by Business Solutions.
2. On June 30, 2020, prepare the adjusting entry
to record any necessary fair value adjustment to its portfolio of
trading securities.
Solutions
Expert Solution
Business solutions has a huge cash balance and wants to invest in the market to get a higher return , so it invested in trading securities for a short term.
In case when trading securities are held, they are recorded first at cost , then any adjustment needs to be booked through unrealised gain/loss in the income statement.
| Date | Accounts and Explanation | Debit | Credit |
| 2020 | |||
| April .16 | Short term investment - Bonds | $8,000 | |
| Cash | $8,000 | ||
| ( To record purchase of bonds for trading purpose) | |||
| April .30 | Short tem investment - Notes | $4,200 | |
| Cash | $4,200 | ||
| ( To record purchase of notes for short term purpose) |
Further in case, of the fair value adjustment, two methods are used, directly as the value of the investment , or an sepreate account named fair value adjustment account, here tthe fair value adjustment account is used:
Here the gain on bonds = $ 14700 - 8000 = $ 6700.
here the loss on holding of Notes = $ 3700 - 4200 = $500
| Date | Accounts and Explanation | Debit | Credit |
| 2020 | |||
| June .30 | Fair Value adjustment account | $6,700 | |
| Unrealised gain on Investment | $6,700 | ||
| ( To record unrealised gain on investment ) | |||
| June .30 | Unrealised loss on Investment | $500 | |
| Fair value adjustment account | $500 | ||
| ( To record unrealised loss on investment ) |
ekkarill92 answered 2 years agoRelated Solutions
Serial Problem Business Solutions LO P3 Santana Rey receives the March bank statement for Business Solutions...
Serial Problem Business Solutions LO P3
Santana Rey receives the March bank statement for Business
Solutions on April 11, 2020. The March 31 bank statement shows an
ending cash balance of $68,266. The general ledger Cash account,
No. 101, shows an ending cash balance per books of $68,825 as of
March 31 (prior to any reconciliation). A comparison of the bank
statement with the general ledger Cash account, No. 101, reveals
the following.
The bank erroneously cleared a $580 check...
Santana Rey created Business Solutions on October 1, 2020. The company has been successful, and its...
Santana Rey created Business Solutions on October 1, 2020. The
company has been successful, and its list of customers has grown.
To accommodate the growth, the accounting system is modified to set
up separate accounts for each customer. The following chart of
accounts includes the account number used for each account and any
balance as of December 31, 2020. Santana Rey decided to add a
fourth digit with a decimal point to the 106 account number that
had been used...
Santana Rey created Business Solutions on October 1, 2020. The company has been successful, and its...
Santana Rey created Business Solutions on October 1, 2020. The
company has been successful, and its list of customers has grown.
To accommodate the growth, the accounting system is modified to set
up separate accounts for each customer. The following chart of
accounts includes the account number used for each account and any
balance as of December 31, 2020. Santana Rey decided to add a
fourth digit with a decimal point to the 106 account number that
had been used...
Serial Problem Business Solutions LO P2, A3 Part A Santana Rey of Business Solutions is evaluating...
Serial Problem Business Solutions LO P2, A3
Part A
Santana Rey of Business Solutions is evaluating her inventory to
determine whether it must be adjusted based on lower of cost or
market rules. Business Solutions has three different types of
software in its inventory, and the following information is
available for each.
Per Unit
Inventory
Items
Units
Cost
Market
Office
productivity
6
$
86
$
84
Desktop
publishing
5
114
110
Accounting
6
100
106
Required:
1. & 2. Compute...
Santana Rey created Business Solutions on October 1, 2017. The company has been succesful, and Santana...
Santana Rey created Business Solutions on October 1, 2017. The
company has been succesful, and Santana plans to expand her
business. She believes that an additional $86,000 is needed and is
investigating three funding sources.
a. Santana's sister Cicely is willing to invest $86,000 in the
business as a comman shareholder. Since Santana currently has about
$129,000 invested in the business, Cicely's investment will mean
that Santana will maintain about 60% ownership and Cicely will have
40% ownership of Business...
Serial Problem Business Solutions LO P1, P2 Santana Rey, owner of Business Solutions, realizes that she...
Serial Problem Business Solutions LO P1, P2 Santana Rey, owner
of Business Solutions, realizes that she needs to begin accounting
for bad debts expense. Assume that Business Solutions has total
revenues of $46,000 during the first three months of 2020, and that
the Accounts Receivable balance on March 31, 2020, is $22,617.
Required: 1a. Prepare the adjusting entry to record bad debts
expense, which are estimated to be 1% of total revenues on March
31, 2020. There is a zero...
Serial Problem Business Solutions (Indirect) LO P1, P2, P3 Santana Rey, owner of Business Solutions, decides...
Serial Problem Business Solutions (Indirect) LO P1, P2, P3
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2018
Computer
services revenue
$
24,307
Net sales
18,293
Total
revenue
42,600
Cost of goods
sold
$
14,852
Depreciation
expense—Office equipment
390
Depreciation
expense—Computer equipment
1,200
Wages
expense
2,750
Insurance
expense
535
Rent
expense
2,475
Computer
supplies expense...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
25,107
Net sales
17,793
Total revenue
42,900
Cost of goods sold
$
14,152
Depreciation expense—Office equipment
330
Depreciation expense—Computer equipment
1,240
Wages expense
2,450
Insurance expense
525
Rent expense
2,275
Computer supplies expense
1,235
Advertising expense
520
Mileage expense
270
Repairs expense—Computer...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended March 31, 2020
Computer services revenue
$
25,207
Net sales
18,593
Total revenue
43,800
Cost of goods sold
$
14,552
Depreciation expense—Office equipment
360
Depreciation expense—Computer equipment
1,220
Wages expense
2,650
Insurance expense
545
Rent expense
2,375
Computer supplies expense
1,275
Advertising expense
510
Mileage expense
310
Repairs expense—Computer...
Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her...
Santana Rey, owner of Business Solutions, decides to prepare a
statement of cash flows for her business using the following
financial data. BUSINESS SOLUTIONS Income Statement For Three
Months Ended March 31, 2018 Computer services revenue $ 24,507 Net
sales 18,193 Total revenue 42,700 Cost of goods sold $ 14,252
Depreciation expense—Office equipment 380 Depreciation
expense—Computer equipment 1,180 Wages expense 2,950 Insurance
expense 495 Rent expense 2,075 Computer supplies expense 1,285
Advertising expense 600 Mileage expense 250 Repairs
expense—Computer 910...
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