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 $4 million, losses were $11 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 $21 million.
		13		Purchased 2 million Ferry Intercommunications common shares for $26 million.
		15		Sold the FF&G Corporation bonds for $21.9 million.
		22		Purchased U.S. Treasury bills for $66 million and Treasury bonds for $74 million.
		23		Sold half the Ferry Intercommunications common shares for $11 million.
		26		Sold the U.S. Treasury bills for $69 million.
		27		Sold the Treasury bonds for $72 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 $11 per share.

2019
Jan.		2		Sold the remaining Ferry Intercommunications common shares for $11.4 million.
		5		Purchased Warehouse Designs Corporation bonds for $43 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.

Answer 1

Answer 1 & 3.
		(Amt. in millions)
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
2018
12-Dec	Investment in FF& G Bonds	21.00
	Cash		21.00
	(To record the purchase of FF&G Bonds)
13-Dec	Investment in Ferry Common shares	26.00
	Cash		26.00
	(To record the purchase of Ferry Common Shares)
15-Dec	Cash	21.90
	Investment in FF & G Bonds		21.00
	Gain on Sale of Investments		0.90
	(To record the sale of FF&G Bonds)
22-Dec	Investment in US Treasury Bills	66.00
	Investment in US Treasury Bonds	74.00
	Cash		140.00
	(to record the purchase of US treasury Bills & Bonds)
23-Dec	Cash	11.00
	Loss on Sale of Investments	2.00
	Investment in Ferry Common Shares		13.00
	(To Record sale of the half of Shares of ferry)
26-Dec	Cash	69.00
	Investment in US Treasury Bills		66.00
	Gain on Sale of Investments		3.00
	(To record the sale of US Treasury Bills)
27-Dec	Cash	72.00
	Loss on Sale of Investments	2.00
	To Investment in US Treasury Bonds		74.00
	(To record the sale of US Treasury Bonds)
28-Dec	Cash	0.20
	Investment Revenue		0.20
	(To record the dividend recd from Ferry)
31-Dec	Net Unrealized Holding Gains & Losses	2.00
	Fair Value Adjustments		2.00
	(To record the fair value adjustment of AFS Investments)
31-Dec	Investment Revenue	5.20
	Gain on Sale of Investment	7.90
	Income Summary	3.90
	Loss on Sale of Investment		15.00
	Net Unrealized Holdimg Gain & Losses		2.00
	(To record the gain & Loss earned during the period)
2019
2-Jan	Cash	11.40
	Loss on Sale of Investments	1.60
	Investment in Ferry Common Shares		13.00
	(To record the sale of Ferry Common Shares)
5-Jan	Investment in Warehouse Bonds	43.00
	Cash		43.00
	(to record the purchase of warehouse bonds)

Answer 2.
Balance Sheet (Partial)
As on Dec 31, 2018
Assets
Short Term Investments
Investment in in Ferry Common Shares	13.00
Less: Fair Value Adjustments	(2.00)	11.00
Income Statement
For the Year Ended Dec 31, 2018
Investment Revenue	5.20
Gain on sale Of Invetesments	7.90
Loss on Sale of Investments	(15.00)
Net unrealized holding gains and losses on investments	(2.00)