Reporting of and Analyzing Financial Effects of Available-for-Sale (Equity) Securities
Guay Company had the following transactions and adjustment related to a stock investment classified as a trading security. Assume that when the shares were purchased, management did not intend to sell the stock in the near future. Record the transactions and adjustments for Guay Company under this assumption.
2015 | |
Nov. 15 | Purchased 6,000 shares of Core, Inc.'s common stock at $16 per share plus a brokerage commission of $900. Guay Company expects to sell the stock in the near future. |
Dec. 22 | Received a cash dividend of $1.25 per share of common stock from Core. |
Dec. 31 | Made the adjusting entry to reflect year-end fair value of the stock investment in Core. The year-end market price of the Core common stock is $17.5 per share. |
2016 | |
Jan. 20 | Sold all 6,000 shares of the Core common stock for $94,400. |
Required a. Prepare journal entries to record these transactions.
General Journal |
Date | Description | Debit | Credit |
2015 | | | |
11/15 | Answer |
Answer | Answer |
| | | |
12/22 | Answer |
Answer | Answer |
| | | |
12/31 | Answer |
Answer | Answer |
| | | |
2016 | | | |
1/20 | Answer |
Answer | Answer |
| Unrealized Gain | Answer | Answer |
| Answer |
Answer | Answer |
| Gain on Sale of Investment | Answer | Answer |
| | | |
b. Post the journal entries from a to their respective T-accounts.
Cash (A) |
11/15/15 | Answer | Answer | |
12/22/15 | Answer | Answer | |
12/31/15 | Answer | Answer | |
1/20/16 | Answer | Answer | |
| | | |
Investment in Core, Inc. (A) |
11/15/15 | Answer | Answer | |
12/22/15 | Answer | Answer | |
12/31/15 | Answer | Answer | |
1/20/16 | Answer | Answer | |
| | | |
Gain on sale of investment (R) |
11/15/15 | Answer | Answer | |
12/22/15 | Answer | Answer | |
12/31/15 | Answer | Answer | |
1/20/16 | Answer | Answer | |
| | | |
Unrealized gain (AOCI) |
11/15/15 | Answer | Answer | |
12/22/15 | Answer | Answer | |
12/31/15 | Answer | Answer | |
1/20/16 | Answer | Answer | |
| | | |
Dividend Income (R) |
11/15/15 | Answer | Answer | |
12/22/15 | Answer | Answer | |
12/31/15 | Answer | Answer | |
1/20/16 | Answer | Answer | |
| | | |
c. Record each of the transactions in the financial statement effects template.
Balance Sheet | Transaction | Cash Asset | + | Noncash Assets | = | Liabilities | + | Contrib. Capital | + | Earned Capital | 11/15/15 Purchase 6,000 shares of Core, Inc. common | $Answer | + | $Answer | = | $Answer | + | $Answer | + | $Answer | 12/22 Dividend income | Answer | + | Answer | = | Answer | + | Answer | + | Answer | 12/31 Increase in investment | Answer | + | Answer | = | Answer | + | Answer | + | Answer | 1/20/16 Sale of Core, Inc. common | Answer | + | Answer | = | Answer | + | Answer | + | Answer | | Answer | + | Answer | = | Answer | + | Answer | + | Answer | | Income Statement | | Revenues | - | Expenses | = | Net Income | | $Answer | - | $Answer | = | $Answer | | Answer | - | Answer | = | Answer | | Answer | - | Answer | = | Answer | | Answer | - | Answer | = | Answer | | | | | | | |