In: Accounting
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.
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 |