In: Accounting
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 2021 and the first month of 2022. The only
securities held by Amalgamated at October 1, 2021 were $60 million
of 10% bonds of Kansas Abstractors, Inc., purchased on May 1, 2021
at face value and held in Amalgamated’s trading securities
portfolio. The company’s fiscal year ends on December 31.
2021 | ||||
Oct. | 18 | Purchased 2 million shares of Millwork Ventures Company common stock for $71 million. Millwork has a total of 70 million shares issued. | ||
31 | Received semiannual interest of $2.4 million from the Kansas Abstractors bonds. | |||
Nov. | 1 | Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2031. Semiannual interest is payable April 30 and October 31. | ||
1 | Sold the Kansas Abstractors bonds for $53 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 $60 million face value, to be held until they mature in 2031. Semiannual interest is payable May 31 and November 30. | ||
20 | Purchased U. S. Treasury bonds for $7.6 million as trading securities, hoping to earn profits on short-term differences in prices. | |||
21 | Purchased 4 million shares of NXS Corporation's 56 million shares of common stock for $56 million, planning to hold these shares until market conditions encourage their sale. | |||
23 | Sold the Treasury bonds for $7.8 million. | |||
29 | Received cash dividends of $11 million from the Millwork Ventures Company shares of common stock. | |||
31 | Recorded any necessary adjusting entries relating to the investments. The market price of the Millwork Ventures Company common stock was $30.00 per share and $16.50 per share for the NXS Corporation common stock. The fair values of the bond investments were $59.2 million for Household Plastics Corporation and $16.4 million for Holistic Entertainment Enterprises. |
2022 | ||||
Jan. | 7 | Sold the NXS Corporation common stock shares for $54 million. |
Required:
Prepare the appropriate journal entry for each transaction or
event. Use one summary entry on December 31 to adjust the portfolio
of equity investments to fair value. (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).)
Record the purchase of 2 million shares of Millwork Ventures Company common stock for $71 million.
Date | Accounts | Debit | Credit |
Oct-18 | Investment in Millwork ventures common shares | 71 | |
Cash | 71 | ||
Oct-31 | Cash | 2.4 | |
Investment revenue | 2.4 | ||
Nov-01 | Investment in Holistic Entertainment bonds | 18 | |
Cash | 18 | ||
Nov-01 | Cash | 53 | |
Loss on sale of investment | 7 | ||
Investment in Kansas Abstractors bonds | 60 | ||
Dec-01 | Investment in Household Plastic bonds | 60 | |
Cash | 60 | ||
Dec-20 | Investment in US Treasury bonds | 7.6 | |
Cash | 7.6 | ||
Dec-21 | Investment in NXS common shares | 56 | |
Cash | 56 | ||
Dec-23 | Cash | 7.8 | |
Investment in US treasury bonds | 7.6 | ||
Gain on sale of investment | 0.2 | ||
Dec-29 | Cash | 11 | |
Investment revenue | 11 | ||
Dec-31 | Investment revenue receivable-Holistic entertainement | 0.3 | |
Investment revenue receivable-Household Plastic | 0.6 | ||
Investment revenue | 0.9 | ||
Net reailsed holding gains & losses - OCI [(30 * 2) - 71] | 11 | ||
Fair value adjustmemts | 11 | ||
Fair value adjustmemts [(16.5 * 4) - 56] | 10 | ||
Net reailsed holding gains & losses - I/S | 10 | ||
Net reailsed holding gains & losses-I/S (NXS) | 10 | ||
Investment revenue | 14.3 | ||
Gain on sale of investments (US treasury bonds) | 0.2 | ||
Loss on sale of invesment (Kansas abstractors) | 7 | ||
Income summary (balancing) | 17.5 | ||
Jan-01 | Cash | 54 | |
Loss on sale of investment (NXS shares) | 2 | ||
Investment in NXS common shares | 56 |