Question

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $35 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31. 2018 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $68 million. 31 Received semiannual interest of $1.4 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $54 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $33 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $50 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U. S. Treasury bonds for $6.4 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $60 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale. 23 Sold the Treasury bonds for $6.5 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $32.50 per share and $17.00 per share for the NXS Corporation common. The fair values of the bond investments were $62.7 million for Household Plastics Corporation and $17.5 million for Holistic Entertainment Enterprises. 2019 Jan. 7 Sold the NXS Corporation common shares for $58 million. Required: Prepare the appropriate journal entry for each transaction or event. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

Date	General journal	debit	Credit
2018
October 18	Investment in Millwork Ventures preferred shares	68
	Cash		68
October 31	Cash	1.4
	Investment revenue		1.4
November 1	Investment in Holistic Entertainment bonds	54
	Cash		54
November 1	Cash	33
	Loss on sale of investments (35-33)	2
	Investment in Kansas Abstractors bonds		35
December 1	Investment in Household Plastics bonds	50
	Cash		50
December 20	Investment in U.S. Treasury bonds	6.4
	Cash		6.4
December 21	Investment in NXS common shares	60
	Cash		60
December 23	Cash	6.5
	Investment in U.S. Treasury bonds		6.4
	Gain on sale of investments (6.5-6.4)		0.1
December 29	Cash	3
	Investment revenue		3
December 31	Accrued interest:
	Investment revenue receivable - Holistic Entertainment (54*10%*2/12)	0.9
	Investment revenue receivable - Household Plastics (50*12%*2/12)	1.0
	Investment revenue		1.9
	Revaluations:
	Net unrealized holding gains and losses—OCI	3
	Fair value adjustment (2 million*32.50)-68		3
	Fair value adjustment (4 million *17)-60	8
	Net unrealized holding gains and losses—I/S		8
	Closing entry:
	Net unrealized holding gains and losses—I/S (NXS)	8
	Investment revenue (1.4+3+1.9)	6.3
	Gain on sale of investments (U.S. Treasury bonds)	0.1
	Loss on sale of investments (Kansas Abstractors)		2
	Income summary (to balance)		12.4
2019
January 7	Cash	58
	Loss on sale of investments (to balance)	2
	Investment in NXS common shares (account balance)		60

It is assumed that there will be no other transactions involving trading securities, the 2019 adjusting entry to remove the fair value adjustment associated with the sold securities will be as follows:

2019
December 31	Net unrealized holding gains and losses—I/S	8
	Fair value adjustment (account balance)		8