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
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 $24,500. | ||
| Feb. | 9 | Purchased notes of Sony for $59,040. | ||
| June | 12 | Purchased bonds of Mattel for $44,500. | ||
| Dec. | 31 | Fair values for debt in the portfolio are Johnson & Johnson, $26,300; Sony, $49,750 and Mattel, $54,550. |
Year 2
| Apr. | 15 | Sold all of the bonds of Johnson & Johnson for $27,500. | ||
| July | 5 | Sold all of the bonds of Mattel for $38,650. | ||
| July | 22 | Purchased notes of Sara Lee for $16,700. | ||
| Aug. | 19 | Purchased bonds of Kodak for $18,100. | ||
| Dec. | 31 | Fair values for debt in the portfolio are Kodak, $18,725 Sara Lee, $16,000 and Sony, $62,000. |
Year 3
| Feb. | 27 | Purchased bonds of Microsoft for $161,200. | ||
| June | 21 | Sold all of the notes of Sony for $60,800. | ||
| June | 30 | Purchased bonds of Black & Decker for $54,400. | ||
| Aug. | 3 | Sold all of the notes of Sara Lee for $13,350. | ||
| Nov. | 1 | Sold all of the bonds of Kodak for $23,075. | ||
| Dec. | 31 | Fair values for debt in the portfolio are Black & Decker, $57,000 and Microsoft, $159,400. |
Required: 1. Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.
Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.
Year 1 - Correct and Completed
| No | Date | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | Jan 20 | Debt investments - AFS | 24,500 | |
| Cash | 24,500 | |||
| 2 | Feb 09 | Debt investments - AFS | 59,040 | |
| Cash | 59,040 | |||
| 3 | Jun 12 | Debt investments - Afs | 44,500 | |
| Cash | 44,500 | |||
| 4 | Dec 31 | Fair value adjustment - AFS | 2,560 | |
| Unrealized gain - Equity | 2,560 |
Year 2 - WHAT IS THE FAIR VALUE ADJUSTMENT FOR YEAR 2, SEE BELOW JOURNAL ENTRY
| No | Date | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | Apr 15 | Cash | 27,500 | |
| Gain on sale of debt investments | 3,000 | |||
| Debt investments - AFS | 24,500 | |||
| 2 | Jul 05 | Cash | 38,650 | |
| Loss on sale of debt investments | 5,850 | |||
| Debt investments - AFS | 44,500 | |||
| 3 | Jul 22 | Debt investments - AFS | ||
| Cash | 16,700 | |||
| 4 | Aug 19 | Debt investments - AFS | 18,100 | |
| Cash | 18,100 | |||
| 5 | Dec 31 | Fair value adjustment - AFS | ||
| Unrealized gain - Equitys | t |
- Fair values for debt in the portfolio are: Kodak, $18,725 Sara Lee, $16,000 and Sony, $62,000.
|
YEAR 3 - WHAT IS THE FAIR VALUE ADJUSTMENT, SEE BELOW FOR JOURNAL ENTRY
| No | Date | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | Feb 27 | Debt investments - AFS | 161,200 | |
| Cash | 161,200 | |||
| 2 | Jun 21 | Cash | 60,800 | |
| Gain on sale of debt investments | 1,760 | |||
| Debt investments - AFS | 59,040 | |||
| 3 | Jun 30 | Debt investments - AFS | 54,400 | |
| Cash | 54,400 | |||
| 4 | Aug 03 | Cash | 13,350 | |
| Loss on sale of debt investments | 3,350 | |||
| Debt investments - AFS | 16,700 | |||
| 5 | Nov 01 | Cash | 23,075 | |
| Gain on sale of debt investments | 4,975 | |||
| Debt investments - AFS | 18,100 | |||
| 6 | Dec 31 | ? | ? | |
| ? |
- Fair values for debt in the portfolio are: Black & Decker, $57,000 and Microsoft, $159,400
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
College Accounting A Contemporary Approach
Authors: David Haddock, John Price, Michael Farina
3rd edition
978-0077639730
