Question

(Edition 12th) P15-19A Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows:

2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at $ 12.00 per share. Jetway plans to sell the stock within three months, when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of $0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for $13.40 per share.

Oct.1 Purchased a Violet bond for $20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec.31 Received a $100 interest payment from Violet.

Dec.31 Adjusted the Violet bond to its market value of $22,000.

Requirements:

1.Classify each of the investments made during 2018. (Assume the equity investments represent less than 20% of ownership of outstanding voting stock.)

2.Jornalize the 2018 transaction. Explanations are not required.

3.Prepare T-accounts for the investment assets, and show how to report the investments on Jetway's balance sheet at December 31, 2018.

4.Where is the unrealized holding gain or loss associated with the trading debt investment reported?

Answer 1

solution:- journal entries in the books of Jetway Corporation:-

DATE	PARTICULARS	DEBIT	CREDIT
2018 JULY 2	INVESTMENT IN EQUITY SHARES OF POGO INC. A/C (4200*12) TO BANK BEING INVESTMENT MADE IN EQUITY SHARE SOF POGO INC.	50400	50400
AUG 21	BANK A/C TO DIVIDEND INCOME (4200*0.8) BEING DIVIDEND RECEIVED ON EQUITY SHARES .	3360	3360
SEP 16	BANK A/C (4200*13.4) TO INVESTMENT IN POGO INC. TO GAIN ON SALE OF INVESTMENT BEING INVESTMENT IN EQUITY SHARES SOLD AT A GAIN OF $5880	56280	50400 5880
OCT 1	INVESTMENT IN VIOLET BONDS A/C TO BANK BEING INVESTMENT IN VIOLET BONDS	20000	20000
DEC 31	BANK A/C TO INTEREST INCOME BEING INTEREST RECEIVED ON VIOLET BONDS	100	100
DEC31	INVESTMENT IN BONDS A/C TO P& L ADJUSTMENT BEING VIOLET BOND ADJUSTED AT MARKET VALUES .	2000	2000

INVESTMENT IN EQUITY SHARES ACCOUNT

DATE	PARTICULARS	AMOUNT	DATE	PARTICULARS	AMOUNT
JULY 2	TO BANK	50400	SEP 16	BY BANK	56280
SEP 16	TO GAIN ON SALE OF INVESTMENT	5880
DEC31	TOTAL	56280	DEC 31	TOTAL	56280

INVESTMENT IN VOILET BONDS ACCOUNT

DATE	PARTICULARS	AMOUNT	DATE	PARTICULARS	AMOUNT
OCT 1	TO BANK	20000	DEC31	BY BALANCE C/D	22000
DEC31	TO P&L ADJUSTMENT	2000
DEC 31	TOTAL	22000	DEC31	TOTAL	22000