Question

In: Accounting

1. Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.

 


Mead Inc. began operations in Year 1, following is a series of transactions and events involving its long-term debt investments in available-for-sale securities.

Year 1

Jan.   20   Purchased Johnson & Johnson bonds for $26,000.
Feb.   9   Purchased notes of Sony for $60,390.
June   12   Purchased bonds of Mattel for $46,000.
Dec.   31   Fair values for debt in the portfolio are Johnson & Johnson, $30,100; Sony, $49,650; and Mattel, $54,850.


Year 2

Apr.   15   Sold all of the bonds of Johnson & Johnson for $29,000.
July   5   Sold all of the bonds of Mattel for $39,700.
July   22   Purchased notes of Sara Lee for $15,900.
Aug.   19   Purchased bonds of Kodak for $19,150.
Dec.   31   Fair values for debt in the portfolio are Kodak, $19,250; Sara Lee, $17,500; and Sony, $62,000.


Year 3

Feb.   27   Purchased bonds of Microsoft for $159,600.
June   21   Sold all of the notes of Sony for $62,000.
June   30   Purchased bonds of Black & Decker for $55,900.
Aug.   3   Sold all of the notes of Sara Lee for $14,700.
Nov.   1   Sold all of the bonds of Kodak for $24,050.
Dec.   31   Fair values for debt in the portfolio are Black & Decker, $57,900; and Microsoft, $159,700.

Required:
1. Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.

Solutions

Expert Solution

Date

General journal

Debit

Credit

Jan 20, Year 1

Long ­term investments—AFS (J&J)

26000

Cash

26000

Feb 09, Year 1

Long­ term investments—AFS (Sony)

60390

Cash

60390

Jun 12, Year 1

Long­ term investments—AFS (Mattel)

46000

Cash

46000

Dec 31, Year 1

Fair value adjustment—AFS (LT)

2210

Unrealized Gain—Equity (26000+69390+46000)-(30100+49650+54850)

2210

Apr 15, Year 2

Cash

29000

Gain on sale of investments

3000

Long ­term investments—AFS (J&J)

26000

Jul 05, Year 2

Cash

39700

Loss on sale of investments

6300

Long ­term investments—AFS (Mattel)

46000

Jul 22, Year 2

Long ­term investments—AFS (Sara Lee)

15900

Cash

15900

Aug 19, Year 2

Long ­term investments—AFS ( Kodak)

19150

Cash

19150

Dec 31, Year 2

Fair value adjustment—AFS (LT)

3310

Unrealized gain—Equity (60390+15900+19150)-(62000+17500+19250)

3310

Feb 27, Year 3

Long­ term investments—AFS (Microsoft)

159600

Cash

159600

Jun 21, Year 3

Cash

62000

Gain on sale of investments

1610

Long­ term investments—AFS (Sony)

60390

Jun 30, Year 3

Long­ term investments—AFS (Black & Decker)

55900

Cash

55900

Aug 03, Year 3

Cash

14700

Loss on sale of investments

1200

Long­ term investments—AFS (Sara Lee)

15900

Nov 01, Year 3

Cash

24050

Gain on sale of investments

4900

Long ­term investments—AFS ( Kodak)

19150

Dec 31, Year 3

Fair value adjustment—AFS (LT)

7620

Unrealized gain—Equity (55900+159600)-    {(159700+57900)+2210+3310 }   

7620


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