Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities P3

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 $20,500.
Feb.	9	Purchased Sony notes for $55,440.
June	12	Purchased Mattel bonds for $40,500.
Dec.	31	Fair values for debt in the portfolio are Johnson & Johnson, $21,500; Sony, $52,500; and Mattel, $46,350.
Year 2
Apr.	15	Sold all of the Johnson & Johnson bonds for $23,500.
July	5	Sold all of the Mattel bonds for $35,850.
July	22	Purchased Sara Lee notes for $13,500.
Aug.	19	Purchased Kodak bonds for $15,300.
Dec.	31	Fair values for debt in the portfolio are Kodak, $17,325; Sara Lee, $12,000; and Sony, $60,000.
Year 3
Feb.	27	Purchased Microsoft bonds for $160,800.
June	21	Sold all of the Sony notes for $57,600.
June	30	Purchased Black & Decker bonds for $50,400.
Aug.	3	Sold all of the Sara Lee notes for $9,750.
Nov.	1	Sold all of the Kodak bonds for $20,475.
Dec.	31	Fair values for debt in the portfolio are Black & Decker, $54,600, and Microsoft, $158,600.

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.

2. Prepare a table that summarizes the (a) total cost, (b) total fair value adjustment, and (c) total fair value of the portfolio of long-term available-for-sale debt securities at each year-end.

Check (2b) Fair Value Adj. bal.: 12/31/Year 1, $3,910 Dr.; 12/31/Year 2, $5,085 Dr.

3. Prepare a table that summarizes (a) the realized gains and losses and (b) the unrealized gains or losses for the portfolio of long-term available-for-sale debt securities at each year-end.

(3b) Unrealized Gain at 12/31/Year 3, $2,000