Question

Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities LO P3

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Mead Inc. began operations in Year 1, following is a series of transactions and events involving its long-term debt investments in available-for-sale securities.

Year 1

Jan.		20		Purchased Johnson & Johnson bonds for $23,000.
Feb.		9		Purchased notes of Sony for $57,690.
June		12		Purchased bonds of Mattel for $43,000.
Dec.		31		Fair values for debt in the portfolio are Johnson & Johnson, $26,500; Sony, $47,850; and Mattel, $53,050.

Year 2

Apr.		15		Sold all of the bonds of Johnson & Johnson for $26,000.
July		5		Sold all of the bonds of Mattel for $37,600.
July		22		Purchased notes of Sara Lee for $14,500.
Aug.		19		Purchased bonds of Kodak for $17,050.
Dec.		31		Fair values for debt in the portfolio are Kodak, $18,200; Sara Lee, $14,500; and Sony, $61,000.

Year 3

Feb.		27		Purchased bonds of Microsoft for $159,800.
June		21		Sold all of the notes of Sony for $59,600.
June		30		Purchased bonds of Black & Decker for $52,900.
Aug.		3		Sold all of the notes of Sara Lee for $12,000.
Nov.		1		Sold all of the bonds of Kodak for $22,100.
Dec.		31		Fair values for debt in the portfolio are Black & Decker, $56,100; and Microsoft, $159,100.

2. Complete the following table that summarizes the (a) total cost, (b) total fair value adjustment, and (c) total fair value of the portfolio of long-term available-for-sale debt securities at each year-end. (Loss amounts should be indicated with a minus sign.)

Answer 1

2)
	12/31 Year 1	12/31 Year 2	12/31 Year 3
Long-Term AFS Securities (cost)	$ 123,690	$89,240	$    212,700
Fair Value Adjustment-AFS	$ 3,710	$  4,460	$        2,500
Long-Term AFS Securities (Fair Value)	$127,400	$93,700	$    215,200

Workings:-

Year 1:-

Annual adjustment to Fair values
		Cost	Fair Value	Difference
j &j = 1000 x 21.50		23,000	26,500	3,500
Sony = 1200 x 38		57,690	47,850	-9,840
Mattel = 1500 x 30.90		43,000	53,050	10,050
Total		123,690	127,400	3,710

Year 2:-

Annual adjustment to Fair values
		Cost	Fair value	Profit/loss
Kodak		17,050	18,200	1,150
Sara lee		14,500	14,500	0
Sony		57,690	61,000	3,310
Total		89,240	93,700	4,460

Year 3:-

Annual adjustment to Fair values
		Cost	Fair market	difference
Black & Decker		52,900	56,100	3,200
Microsoft		159,800	159,100	-700
Total		212,700	215,200	2,500

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