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. PAGE 8 JOURNAL ACCOUNTING EQUATION DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 1 Jan. 17 Investments-Red Rock Co. Stock 39,600.00 2 Cash 39,600.00 3 Feb. 5 Investments-Sunset Village Bonds 36,000.00 4 Interest Receivable 310.00 5 Cash 36,310.00 6 23 Investments-Mays and Co. Stock 27,000.00 7 Cash 27,000.00 8 Mar. 31 Cash 360.00 9 Interest Receivable 310.00 10 Interest Revenue 50.00 11 Apr. 6 Investment in Minions Corp. Stock 180,000.00 12 Cash 180,000.00 13 30 Cash 750.00 14 Dividend Revenue 750.00 15 Jul. 1 Cash 20,802.00 16 Loss on Sale of Investment 2,808.00 17 Interest Revenue 210.00 18 Investments-Sunset Village Bonds 23,400.00 19 Aug. 14 Cash 41,300.00 20 Gain on Sale of Investments 1,800.00 21 Investments-Harding Construction Stock 39,500.00 22 27 Cash 3,600.00 23 Investment in Minions Corp. Stock 3,600.00 24 Sep. 22 Cash 30,500.00 25 Gain on Sale of Investments 3,500.00 26 Investments-Mays and Co. Stock 27,000.00 27 30 Cash 150.00 28 Interest Revenue 150.00 29 Nov. 1 Investment in Minions Corp. Stock 21,600.00 30 Income of Minions Corp. 21,600.00 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 following questions. 1. Which item is likely to be a trading security? Mays and Co. Correct Why? Because it was sold quickly Correct 2. How are brokerage commission fees treated on stock sales vs. stock purchases? They are deducted from cash received or included in the stock cost Correct 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 Dividend of Minions Corp. stock Correct 5. As an investment, bonds are always categorized as none of these answers Correct 6. What is the companys investment in Minions Corp. at the end of the year? Points: 5 / 7 7. Which of the following investments are likely to be available-for-sale securities? Check all that apply. Minions Corp. stock Red Rock Co. stock Sunset Village bonds CorrectCannot be determined Harding Construction stock Mays and Co. stock Points: 1 / 1 Check My Work 1. Think about the differences between trading securities and available-for-sale securities. 2. How are brokerage commission fees accounted for in each transaction? 3. Look at all journal entries related to these bonds. 4. Consider all the journal entries related to Minions Corp. 5. Think about the different types of bonds and bond issuers. 6. Look at all journal entries related to this stock. 7. Look carefully at the journal entries for each investment. 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 cost Correct Plus valuation allowance for trading investments Correct Trading investments at fair value Correct Points: 3 / 6 Available-For-Sale Securities Available-for-sale investments at cost Correct Less valuation allowance for available-for-sale investments Correct Available-for-sale investments at fair value Correct Points: 3 / 6 2. Where on the balance sheet do trading securities appear? in the current assets section Correct 3. Where is the gain or loss from the change in value of available-for-sale securities reported in the financial statements? in the stockholders equity section on the balance sheet Correct 4. Where are held-to-maturity securities reported? cannot be determined Correct Based on the journal entries for this year, does the company have any held-to-maturity securities? no Correct 5. Where are securities held for strategic reasons reported in the financial statements when using the equity method? on the balance sheet, in the investments section Correct Based on the journal entries for this year, does The Wellington Company have any equity securities? yes Correct Points: 6 / 6 6. Which of the following items does not affect net income? Check all that apply. both gains and losses of any sort for all investments only unrealized gains or losses for all investments realized loss on available-for-sale securities Correctunrealized gain on available-for-sale securities none of these answers is correct realized gain on trading securities unrealized loss on trading securities Points: 1 / 1 Check My Work 1-3. Consider how trading and available-for-sale investments are reported on the financial statements. 4. Think about the characteristics of held-to-maturity investments. 5. What are the distinguishing characteristics of equity securities? 6. How are realized and unrealized gains and losses reported on the financial statements? Think about the accounts involved in each type of transaction.