ACCOUNTING FOR SHORT-TERM INVESTMENTS. Morton Products had no short-term investments in securities on January 1, 19x4. During
Question:
ACCOUNTING FOR SHORT-TERM INVESTMENTS. Morton Products had no short-term investments in securities on January 1, 19x4. During 19x4, Morton engaged in the following transactions:
a) Oct. 10: Purchased a U.S. Treasury bill for $9,600.
b) Nov. 5: Purchased money market mutual funds for $12,000.
c) Nov. 20: Purchased 600 shares of Burt Company stock for $32 per share.
d) Dec. 1: Received $10,000 cash from the U.S. Treasury bill at its maturity.
e) Dec. 28: Received a $2-per-share dividend on the Burt Company stock.
On December 31, 19x4, the money market mutual funds had a market value of $12,150 and the Burt Company stock had a market value of $29 per share.
REQUIRED:
1. Prepare the journal entries for each of the five transactions.
2. Prepare the journal entry, if any, necessary to recognize the December 31, 19x4 market values.
3. Show how short-term investments would be reported among the assets on the December 31, 19x4, balance sheet.
4. Describe how the departure of market values from cost affects the stockholders’
equity section of the balance sheet.
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