You are working for The Wellington Company on temporary assignment while one of the accountants is on family leave. You have been asked to review the companys investment journal entries and provide necessary information to the accountant preparing the financial statements.

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JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1	Jan. 17	Investment-Red Rock Co. Stock		37,400.00
2		Cash			37,400.00
3	Feb. 5	Investment-Sunset Village Bonds		34,000.00
4		Interest Receivable		290.00
5		Cash			34,290.00
6	23	Investment-Mays and Co. Stock		25,500.00
7		Cash			25,500.00
8	Mar. 31	Cash		340.00
9		Interest Receivable			290.00
10		Interest Revenue			50.00
11	Apr. 6	Investment in Minions Corp. Stock		170,000.00
12		Cash			170,000.00
13	30	Cash		750.00
14		Dividend Revenue			750.00
15	Jul. 1	Cash		16,666.00
16		Loss on Sale of Investments		2,244.00
17		Interest Revenue			210.00
18		Investment-Sunset Village Bonds			18,700.00
19	Aug. 14	Cash		41,200.00
20		Gain on Sale of Investments			1,800.00
21		Investment-Harding Construction Stock			39,400.00
22	27	Cash		3,400.00
23		Investment in Minions Corp. Stock			3,400.00
24	Sep. 22	Cash		29,000.00
25		Gain on Sale of Investments			3,500.00
26		Investment-Mays and Co. Stock			25,500.00
27	30	Cash		130.00
28		Interest Revenue			130.00
29	Nov. 1	Investment in Minions Corp. Stock		20,400.00
30		Income of Minions Corp.			20,400.00
31	Dec. 31	Unrealized Loss on Available-For-Sale Investments		3,275.00
32		Valuation Allowance for Available-For-Sale Investments			3,275.00
33	31	Valuation Allowance for Trading Investments		2,150.00
34		Unrealized Gain on Trading Investments			2,150.00

Review the journal entries on The Wellington Company panel then answer the questions below.

1. Which item is likely to be a trading security? A)Minions Corp., Hearding Construction, Red Rock Co., or Mays and Co. Why? Because it was sold at a profit, Because it is not as expensive, or Because it was under book value

2. How are brokerage commission fees treated on stock sales vs. stock purchases?

They are added to the cost of the stock for both, They are deducted from cash received or included in the stock cost, They are charged to miscellaneous expense, It depends whether it is a trading or an available-for-sale investment, or They are tracked in a separate account for purchases

3. Based on these journal entries, what is the companys investment in Sunset Village bonds at the end of the year?

4. The journal entry on Aug. 27 most likely shows

1. Unrealized loss on Minions Corp. stock 2. Divided of Minions Corp. stock 3. Purchase of Minions Corp. stock 4. A profit on Minions Corp. stock or 5. Sale of Minions Corp. stock

5. As an investment, bonds are always categorized as

A) trading securities b) available-for-sale securities c) none of these answers d) equity securities e) held-to-maturity securities

6. What is the companys investment in Minions Corp. at the end of the year?

7. Which of the investments below are likely to be available-for-sale securities? Check all that apply.

Minions Corp. stock

Cannot be determined

Mays and Co. stock

Harding Construction stock

Sunset Village bonds

Red Rock Co. stock

The accountant preparing the financial statements has asked you to provide the fair value as of the end of the year for the investments. Present the information as it would be shown on the financial statements. Last year, The Wellington Company reported costs of $68,000 in trading investments and $82,000 in available-for-sale investments. Refer to the journal entries shown on The Wellington Company panel. Assume that all investments sold during this year were trading investments and that purchases during the year were new investments.

1. Select the correct label for each line and fill in the amount. In classifying the investments, choose a categorization which seems most likely, given the pattern of transactions in the journal entries. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank.

Trading Securities

Trading investments at fair value

$

$

Available-For-Sale Securities

$

$

2. Where on the balance sheet do trading securities appear?

3. Where in the financial statements do available-for-sale securities NOT appear?

4. Where are held-to-maturity securities reported? Based on the journal entries for this year, does the company have any held-to-maturity securities?

5. Where are securities held for strategic reasons reported in the financial statements when using the equity method? Based on the journal entries for this year, does The Wellington Company have any equity securities?

6. Which of the items below does not affect net income? Check all that apply.

realized gain on trading securities

none of these answers is correct

only unrealized gains or losses for all investments

unrealized gain on available-for-sale securities

realized loss on available-for-sale securities

unrealized loss on trading securities

both gains and losses of any sort for all investments