Question

American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2018, gains from selling trading securities totaled $6 million, losses were $12 million, and the company had earned $5 million in investment revenue. The following selected transactions relate to American's trading account and equity securities investment account during December 2018, and the first week of 2019. The company's fiscal year ends on December 31. No trading securities were held by American on December 1, 2018.

2018
Dec.		12		Purchased FF&G Corporation bonds for $23 million.
		13		Purchased 2 million Ferry Intercommunications common shares for $30 million.
		15		Sold the FF&G Corporation bonds for $23.2 million.
		22		Purchased U.S. Treasury bills for $70 million and Treasury bonds for $76 million.
		23		Sold half the Ferry Intercommunications common shares for $10 million.
		26		Sold the U.S. Treasury bills for $75 million.
		27		Sold the Treasury bonds for $73 million.
		28		Received cash dividends of $200,000 from the Ferry Intercommunications common shares.
		31		Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Ferry Intercommunications stock was $10 per share.

2019
Jan.		2		Sold the remaining Ferry Intercommunications common shares for $10.1 million.
		5		Purchased Warehouse Designs Corporation bonds for $45 million.

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018.
2. Indicate any amounts that American would report in its 2018 balance sheet and income statement as a result of these investments.
3. Prepare the appropriate journal entry for each transaction or event during 2019.

2***

Balance Sheet
Equity Investments
Less: Fair Value Adjustment
Total
Income Statement:
Investment Revenue
Gain on Sale of Investments
Loss on Sale of Investments
Net unrealized holding gains and losses investment held

JE accounts.

  

Answer 1

		Amount in Million
Date	Account Description	Debit	Credit
12-Dec	Investment in Bond	23.00
	Cash		23.00
	(Being Purchased FF&G Corporation bonds )
13-Dec	Investment in Equity Securities	30.00
	Cash		30.00
	(Being Purchased 2 million Ferry Intercommunications common shares)
15-Dec	Cash	23.20
	Investment in Bond		23.00
	Gain on Sale of Investment		0.20
	(Being Sold the FF&G Corporation bonds)
22-Dec	Investment in Treasury Bills	70.00
	Investment in Treasury Bonds	76.00
	Cash		146.00
	(Being Purchased U.S. Treasury bills & Treasury Bonds)
23-Dec	Cash	10.00
	Loss on Sale of Investments	5.00
	Investment in Equity Securities		15.00
	(Being Sold half the Ferry Intercommunications common shares)
26-Dec	Cash	75.00
	Investment in Treasury Bills		70.00
	Gain on Sale of Investment		5.00
	(Being Treasury Bills Sold)
27-Dec	Cash	73.00
	Loss on Sale of Investments	3.00
	Investment in Treasury Bonds		76.00
	(Being Treasury Bonds Sold)
28-Dec	Cash	0.20
	Dividend Income		0.20
31-Dec	Unrealized holding gains and losses on investment	5.00
	Investment in Equity Securities		5.00
	(Being Unrealised Loss Recorded)

Balance Sheet
Equity Investments	15.00
Less: Fair Value Adjustment	5.00
Total	10.00
Income Statement:
Investment Revenue(Dividend Income)	0.20
Gain on Sale of Investments	5.20
Loss on Sale of Investments	8.00
Net unrealized holding gains and losses investment held	5.00

Date	Account Description	Debit	Credit
2-Jan	Cash	10.10
	Loss on Sale of Investments	4.90
	Investment in Equity Securities		10.00
	Unrealized holding gains and losses on investment		5.00
5-Jan	Investment in Bonds	45.00
	Cash		45.00

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