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 2021 and the first month of 2022. The only securities held by Amalgamated at October 1, 2021 were $30 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 $58 million. Millwork has a total of 30 million shares issued. 

31 Received semiannual interest of $1.5 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 $28 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 $5.6 million as trading securities, hoping to earn profits on shortterm differences in prices. 

21 Purchased 4 million shares of NXS Corporation’s 50 million shares of common stock for $44 million, planning to hold these shares until market conditions encourage their sale. 

23 Sold the Treasury bonds for $5.7 million. 

29 Received cash dividends of $3 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 $27.50 per share and $11.50 per share for the NXS Corporation common stock. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises. 

2022

Jan. 7 Sold the NXS Corporation common stock shares for $43 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.

Answer 1

No.	Date	Account titles and explanation	Debit	Credit
1	October 18, 2018	Investment in Millwork Ventures preferred shares	34
		Cash		34
2	October 31, 2018	Cash	1.5
		Investment revenue		1.5
3	November 1, 2018	Investment in Holistic Entertainment bonds	18
		cash		18
4	November 1, 2018	Unrealized holding loss—NI (40-36)	4
		Fair value adjustment		4
5	November 1, 2018	Cash	36
		Loss on sale of investments	4
		Investment in Kansas Abstractors bonds		40
6	December 1, 2018	Investment in Household Plastics bonds	60
		Cash		60
7	December 20, 2018	Investment in U.S. Treasury bonds	5.8
		Cash		5.8
8	December 21, 2018	Investment in NXS common shares	48
		Cash		48
9	December 21, 2018	Fair value adjustment (6.0-5.8)	0.2
		Unrealized holding gain—NI		0.2
10	December 23, 2018	Cash	6.0
		Investment in U.S. Treasury bonds		5.8
		Gain on sale of investments		0.2
11	December 29, 2018	Cash	9
		Dividend revenue		9
12	December 31, 2018	Interest receivable - Holistic Entertainment (18*10%*2/12)	0.3
		Interest receivable - Household Plastics (60*12%*1/12)	0.6
		Interest revenue		0.9
		(to record accrued interest)
13	December 31, 2018	Unrealized holding loss—NI	9
		Fair value adjustment ((2*((58/2)-24.50)		9
14	December 31, 2018	Fair value adjustment (4*(14.00-(48/4)))	8
		Unrealized holding loss—NI		8
15	January 7, 2019	Unrealized holding loss—NI	10
		Fair value adjustment ((4*14.00)-46)		10
16	January 7, 2019	Cash	46
		Fair value adjustment	2
		Investment in NXS common shares		48

No.	Date	Account titles and explanation	Debit	Credit
1	October 18, 2018	Investment in Millwork Ventures preferred shares	34
		Cash		34
2	October 31, 2018	Cash	1.5
		Investment revenue		1.5
3	November 1, 2018	Investment in Holistic Entertainment bonds	18
		cash		18