Information regarding Seaton Company’s individual investments in securities during its calendar-year 2009, along with the December 31, 2009, fair values, follows.
a. Investment in Beeman Company bonds: $443,150 cost, $481,704 fair value. Seaton intends to hold these bonds until they mature in 2014.
b. Investment in Baybridge common stock: 29,500 shares; $352,304 cost; $382,954 fair value. Seaton owns 32% of Baybridge’s voting stock and has a significant influence over Baybridge.
c. Investment in Carroll common stock: 12,000 shares; $181,692 cost; $195,864 fair value. This investment amounts to 3% of Carroll’s outstanding shares, and Seaton’s goal with this investment is to earn dividends over the next few years.
d. Investment in Newtech common stock: 3,500 shares; $101,038 cost; $99,320 fair value. Seaton’s goal with this investment is to reap an increase in fair value of the stock over the next three to five years. Newtech has 30,000 common shares outstanding.
e. Investment in Flock common stock: 16,300 shares; $110,788 cost; $117,657 fair value. This stock is marketable and is held as an investment of cash available for operations.
Required
1. Identify whether each investment should be classified as a short-term or long-term investment. For each long-term investment, indicate in which of the long-term investment classifications it should be placed.
2. Prepare a journal entry dated December 31, 2009, to record the fair value adjustment of the long-term investments in available-for-sale securities. Seaton had no long-term investments prior to year 2009.