Question
CASE 1 (40 marks) American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11
CASE 1 (40 marks)
American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2021, gains from selling trading securities totaled $6 million, losses from selling trading securities were $12 million, and the company had earned $5 million in interest revenue. The following selected transactions relate to American's investments in trading securities and equity securities during December 2021.The company's fiscal year ends on December 31. No trading securities or equity investments were held by American on December 1, 2021. Assume that the bonds are purchased at face value.
2021
Dec. 12 Purchased FF&G Corporation bonds for $14 million.
13 Purchased 2 million shares of Ferry Intercommunications
common stock for $28 million. American does not have
significant influence over Ferry's operations or policies.
15 Sold the FF&G Corporation bonds for $14.6 million.
23 Sold half the shares of Ferry Intercommunications common
stock for $13 million.
28 Received cash dividends of $200,000 from the Ferry
Intercommunications common stock shares.
31 Recorded any necessary adjusting entry relating to the
remaining investment. The market price of the Ferry
Intercommunications stock was $13 per share.
Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021 including any year-end adjusting entries. (35 marks)
2. Indic
CASE 1 (40 marks)
American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2021, gains from selling trading securities totaled $6 million, losses from selling trading securities were $12 million, and the company had earned $5 million in interest revenue. The following selected transactions relate to American's investments in trading securities and equity securities during December 2021.The company's fiscal year ends on December 31. No trading securities or equity investments were held by American on December 1, 2021. Assume that the bonds are purchased at face value.
2021
Dec. 12 Purchased FF&G Corporation bonds for $14 million.
13 Purchased 2 million shares of Ferry Intercommunications
common stock for $28 million. American does not have
significant influence over Ferry's operations or policies.
15 Sold the FF&G Corporation bonds for $14.6 million.
23 Sold half the shares of Ferry Intercommunications common
stock for $13 million.
28 Received cash dividends of $200,000 from the Ferry
Intercommunications common stock shares.
31 Recorded any necessary adjusting entry relating to the
remaining investment. The market price of the Ferry
Intercommunications stock was $13 per share.
Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021 including any year-end adjusting entries. (35 marks)
2. Indicate any amounts that American would report in its 2021 balance sheet (5 marks)
ate any amounts that American would report in its 2021 balance sheet (5 marks)
with explanation for the balance sheet and the explanation
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