Question

 

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.

3. Complete the following table that summarizes (a) the realized gains and losses and (b) the unrealized gains or losses for the portfolio of long-term available-for-sale debt securities at each year-end. (Losses should be indicated by a minus sign.)

Answer 1

Summary of realized & unrealised gains / (losses); Amountg given in $

	Year 1	Year 2	Year 3
Realized gains (losses)
Sale of Johnson & Johnson		3,000
Sale of Mattel		(6,300)
Sale of Sony			1,610
Sale of Sara Lee			(1,200)
Sale of Kodak			4,900
Total realized gains (losses)	-	(3,300)	5,310
Unrealized gains (losses) at year end	2,210	3,310	2,100

a. Security wise calculation of Realized gains / (losses)

Debts Investments	Cost	Sale Price	gain / (losses)	Gain / (loss) Year
Sale of Johnson & Johnson	26,000	29,000	3,000	Year 2
Sale of Mattel	46,000	39,700	(6,300)	Year 2
Sale of Sony	60,390	62,000	1,610	Year 3
Sale of Sara Lee	15,900	14,700	(1,200)	Year 3
Sale of Kodak	19,150	24,050	4,900	Year 3

b. Year wise calculation of Un-realized gains / (losses)

Year 1	Purchase Cost	Fair Value on Dec. 31	Unrealized gains (losses)
Bonds / Notes	Amount in $	Amount in $	Amount in $
Johnsons & Johnsons Bonds	26,000	30,100	4,100
Sony Notes	60,390	49,650	(10,740)
Mattel Bonds	46,000	54,850	8,850
Total	132,390	134,600	2,210
Year 2	Purchase Cost	Fair Value on Dec. 31	Unrealized gains (losses)
Bonds / Notes	Amount in $	Amount in $	Amount in $
Sony Notes	60,390	62,000	1,610
Sara Lee	15,900	17,500	1,600
Kodak	19,150	19,250	100
Total	95,440	98,750	3,310
Year 3	Purchase Cost	Fair Value on Dec. 31	Unrealized gains (losses)
Bonds / Notes	Amount in $	Amount in $	Amount in $
Microsoft	159,600	159,700	100
Black & Decker	55,900	57,900	2,000
Total	215,500	217,600	2,100