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M&JB Investment Corp. (with a 12/31 year-end) began operations on 1/1/X1 by issuing 10,000 shares of...

M&JB Investment Corp. (with a 12/31 year-end) began operations on 1/1/X1 by issuing 10,000 shares of $5 par value common stock to 5 shareholders. Each shareholder paid $40,000 for their 2,000 shares. M&JB uses straight-line amortization for bond investments, all of which paid annual interest when due on 12/31.Ignore income taxes. Round each transaction to the nearest dollar.

The following transactions took place:

20X1:

Jan. 1 Record the initial investment by the owners described above.

Bought the following Available-for-Sale (AFS) securities:

200 shares of ABC Co. common stock for $ 24 per share.

100 shares of DEF Co. common stock for $ 16 per share.

300 shares of GHI Co. common stock for $20 per share.

Jan. 1 Bought the following Held-to-Maturity securities:

30 bonds of PQR Co. for $938.00 per $1,000 bond.

100 bonds of STU Co. for $1,068.45 per $1,000 bond.

Feb. 2 Bought the following Trading Securities:

300 shares of JKL Co. common stock for $19 per share.

150 shares of MNO common stock for $18 per share.

Aug 3 Sold 200 shares of JKL Co. stock for $26.38 per share.

Bought 100 shares of VWX Co. common stock for $32 per share, classified as AFS Securities.

Sold 300 shares of GHI Co. stock for $21.51 per share.

Dec 15 Received cash dividends from common stock investments for 20X1

Dec 31 Investment expenses of $1,151 were paid in cash for the year

Received interest on bond investments, and made necessary amortizations

Made all necessary fair market value adjustments

Made all necessary closing entries

20X2:

Jan. 1 Issued 100 shares of $100 par value, 8%, cumulative Preferred Stock for $16,845. The Preferred Stock is convertible into common stock, 5 shares of common for each share of preferred.

Jan. 2 Bought 300 shares of RJB Co. common stock for $50 per share. Significant influence was achieved. Assume FVO was not elected.

Apr 2 Sold 100 shares of JKL Co. stock for $31.51 per share

Bought 150 more shares of MNO Co. common stock for $15 per share

Jul 1 Bought 300 shares of XYZ Co. common stock for $60.151 per share; classified as a trading security.

Sold 100 shares of DEF Co. stock for $18.38 per share

Nov1 Declared cash dividends to our shareholders of $1.38 per common share and $8 per preferred share.

Nov 15 Paid dividends declared on Nov. 1

Dec 15 Received cash dividends from common stock investments for 20X2

Dec 31 Investment expenses of $6,845 were paid in cash for the year

Received interest on bond investments, and made necessary amortizations

Made all necessary fair market value adjustments

Made all necessary closing entries

Required:

1.Prepare general journal entries to record the above transactions. Use Excel.

2.Prepare comparative financial statements for the two years. Include an Income Statement (including BEPS and DEPS - show your computations), a Statement of Shareholder Equity, and a Balance Sheet. Use Excel or other spreadsheet software.

Schedule A – Common Stocks

Company Name Shares O/S Dividends per Share FMV per share at:

20X1 20X2 20X1 20X2

ABC Co. 2,000 3.38 3.38 24.38 30.38

DEF Co. 3,000 4.38 4.38 14.38 16.38

JKL Co. 9,000 1.38 1.38 24.38 -

MNO Co. 8,000 2.38 2.38 16.38 15.38

VWX Co. 4,000 5.38 5.38 29.38 31.38

RJB Co. 1,000 21.51 21.51 - 90.38

XYZ Co. 7,000 6.38 6.38 - 59.38

Company Name Reported Earning for:

20X1 20X2

RJB Co. 40,000 46,845

Schedule B – Bonds

All investment bonds pay interest annually on December 31

Company Name Stated Interest Rate Maturity Date

PQR Co. 7.00 % 12/31/20X8

STU Co. 8.25 % 12/31/20X9

Expert Solution

1) Journal entries.

Date	Particulars	Debit	Credit
1-Jan	Cash	$200,000
	Equity Share capital		$50,000
	Securities Premium		$150,000

1-Jan	Investment in ABC	$4,800
	Investment in DEF	$1,600
	Investment in GHI	$6,000
	Cash/Bank		$12,400

1-Jan	Investment in PQR Bond	$28,140
	Investment in STU Bond	$106,845
	Cash/Bank		$134,985

2-Feb	Investment in JKL	$5,700
	Investment in MNO	$2,700
	Cash/Bank		$8,400

3-Aug	Cash /Bank	$11,729
	Investment in JKL		$3,800
	Investment in GHI		$6,000
	Profit on sale of securities		$1,929

3-Aug	Invesment in VXW	$3,200
	Cash/Bank		$3,200

15-Dec	Cash/ Bank	$2,147
	Dividend received		$2,147

31-Dec	Investment Expense	$1,151
	Cash/Bank		$1,151

31-Dec	Investment in ABC	$76
	Unrealised Gain/ Loss- Other comprehensive income	$348
	Investment in DEF		$162
	Investment in VXO		$262
	( Unrealised gain /loss on Available for sale security )

31-Dec	Investment in JKL	$538
	Investment in MNO		$243
	Unrealised Gain to profit & loss		$295
	( Unrealised gain /loss on Available for trading security )

31-Dec	Cash/ Bank	$8,250
	Investment in STU bond		$760
	Interest Income		$7,490

31-Dec	Cash/ Bank	$2,100
	Investment in Bond	$232
	Interest Income		$2,332

	Entries for 2nd Year
1-Jan	Cash/ bank	$16,845
	Preference share capital		$10,000
	Securities premium		$6,845

2-Jan	Investment in RJB	$15,000
	Cash/ Bank		$15,000

2-Apr	Cash/ Bank	$3,151
	To Investment in JKL		$2,438
	To Profit on sale of securities		$713

2-Apr	Investment in MNO	$2,250
	Cash/Bank		$2,250

2-Jul	Investment in XYZ	$18,045
	Cash/Bank		$18,045

2-Jul	Cash/ Bank	$1,838
	Investment in Def		$1,438
	Other comprehensive		$162
	To Profit on sale of securities		$238

1-Nov	Dividend A/c	$14,600
	Dividend Payable		$14,600

15-Nov	Dividend Payable	$14,600
	Cash/Bank		$14,600

15-Dec	Cash/ Bank	$3,842
	Dividend received		3842

15-Dec	Cash/ Bank	$6,453
	Investment in RJB		$6,453

31-Dec	Investment Exps	$6,845
	Cash/ Bank		$6,845

31-Dec	Cash/ Bank	$8,250
	Investment in STU bond		$760
	Interest Income		$7,490

31-Dec	Cash/ Bank	$2,100
	Investment in Bond	$232
	Interest Income		$2,332

31-Dec	Investment in RJB	$14,054
	Share in Profit of associates		$14,054

31-Dec	Investment in ABC	$1,200
	Investment in VXW	$200
	Unrealised Gain/ Loss- Other comprehensive income		$1,400

31-Dec	Unreasiled gain /loss chared to p&l	$69
	Investment in XYZ	$231
	Investment in MNO		$300.

Cmparitive income statement

Particulars	20x1	20x2
Income
Profit on sale of securities	$1,929	$713
Dividend received	$2,147	$3,842
Unrealised Gain to profit & loss	$295	-$69
Interest Income	$9,822	$9,822
Share of profit of associate		$14,054
	$14,193	$28,362
Expense
Invest exps	$1,151	$6,845

Profit	$13,042	$21,517

Working

Closing statemt of investment for 1st year
Particulars	Purchased	Purchase price	Purchase value	Sold	Sell price	Sale value	Closing Balance	Dividen per share		FMV	Unrealised gain/ loss
ABC	$200	$24	$4,800		$0		$200	$3	$676	$24	$76
DEF	$100	$16	$1,600		$0		$100	$4	$438	$14	-$162
GHI	$300	$20	$6,000	$300	$22	$6,453	$0		$0
JKL	$300	$19	$5,700	$200	$26	$5,276	$100	$1	$138	$24	$538
MNO	$150	$18	$2,700		$0		$150	$2	$357	$16	-$243
VWX	$100	$32	$3,200		$0		$100	$5	$538	$29	-$262

Closing statemt of investment for 2nd year
Particulars	Opening	Purcahse	Sold	Closing	Dividend per share		FMV	Unrealised gain/ loss
ABC	$200			$200	$3	$676	$30	$1,200
DEF	$100		$100	$0	$4	$0	$16
GHI	$0			$0	$0	$0
JKL	$100		$100	$0	$1	$0
MNO	$150	$150		$300	$2	$714	$15	-$300
VWX	$100			$100	$5	$538	$31	$200
XYZ		$300		$300	$6	$1,914	$59	$231
RJB		$300		$300	$22	$6,453

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