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.

Date	General Journal	Debit	Credit
Dec 31	Fair value adjustment - AFS	?
	Unrealized gain - Equity		?

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

Date	General Journal	Debit	Credit
Dec 31