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

ekkarill92 answered 1 year ago

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