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 DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 Jan. 17 Investment-Red Rock Co. Stock 39,600.00 2 Cash 39,600.00 3 Feb. 5 Investment-Sunset Village Bonds 36,000.00 4 Interest Receivable 310.00 5 Cash 36,310.00 6 23 Investment-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 Investments 2,808.00 17 Interest Revenue 210.00 18 Investment-Sunset Village Bonds 23,400.00 19 Aug. 14 Cash 41,300.00 20 Gain on Sale of Investments 1,800.00 21 Investment-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 Investment-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 Investments Review the journal entries on The Wellington Company panel then answer the questions below. 1. Which item is likely to be a trading security ? Minions Corp. Why? Because it was sold quickly 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 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 5. As an investment, bonds are always categorized as 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. Harding Construction stock Minions Corp. stock Cannot be determined Sunset Village bonds Red Rock Co. stock Mays and Co. stock Financial Statements and Valuation 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 Unrealized gain (loss) on trading investments Plus valuation allowance for trading investments Available-For-Sale Securities Plus valuation allowance for available-for-sale investments Unrealized gain (loss) on available-for-sale investments 2. Where on the balance sheet do trading securities appear? in the current assets section 3. Where in the financial statements do available-for-sale securities NOT appear? in the current assets section on the balance sheet 4. Where are held-to-maturity securities reported? on the balance sheet, in long-term assets Based on the journal entries for this year, does the company have any held-to-maturity securities? yes 5. Where are securities held for strategic reasons reported in the financial statements when using the equity method ? unrealized gains or losses are reported on the income statement Based on the journal entries for this year, does The Wellington Company have any equity securities ? yes 6. Which of the items below does not affect net income? Check all that apply. both gains and losses of any sort for all investments realized loss on available-for-sale securities unrealized loss on trading securities none of these answers is correct unrealized gain on available-for-sale securities only unrealized gains or losses for all investments realized gain on trading securities