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Chapter 13: Q6P (page 658)

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

Short Answer

Expert verified

Cash debited by $270,000, gain on sale of securities credited by $55,000 and equity investment credited by $215,000. Equity investment is debited by $163,500 and cash credited by $163,500. Unrealized holding loss debited by $45,500 and fair value adjustment credited by $45,500.

Step by step solution

01

Definition of preference share

Preference shares are those shares which enjoy some additional rights over the equity shares. These rights are pre decided before the issuance of the preference shares.

02

Step 2:Journal entries for sale and purchase of securities

Date

Particulars

Debit

Credit

October 10, 2017

Cash

$270,000

Gain on sale of securities

$55,000

Equity Investment

$215,000

(Being entry for the sale of common stock

November 2, 2017

Equity Investment

$163,500

Cash

$163,500

(Being entry for the purchase of securities)

December 31, 2017

Unrealized holding loss

$45,500

Fair value adjustment

$45,500

(Being entry for the fair value adjustment)

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Most popular questions from this chapter

(Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017.

How is present value related to the concept of a liability?

Question: At what amount should trading, available-for-sale, and held-to-maturity debt securities be reported on the balance sheet?

Question: (Equity Investments) Castleman Holdings, Inc. had the following equity investment portfolio at

January 1, 2017.

Evers Company 1,000 shares @ \(15 each \)15,000

Rogers Company 900 shares @ \(20 each 18,000

Chance Company 500 shares @ \)9 each 4,500

Equity investments @ cost 37,500

Fair value adjustment (7,500)

Equity investments @ fair value \(30,000

During 2017, the following transactions took place.

1. On March 1, Rogers Company paid a \)2 per share dividend.

2. On April 30, Castleman Holdings, Inc. sold 300 shares of Chance Company for \(11 per share.

3. On May 15, Castleman Holdings, Inc. purchased 100 more shares of Evers Company stock at \)16 per share.

4. On December 31, 2017, the stocks had the following price per share values: Evers \(17, Rogers \)19, and Chance \(8.

During 2018, the following transactions took place.

5. On February 1, Castleman Holdings, Inc. sold the remaining Chance shares for \)8 per share.

6. On March 1, Rogers Company paid a \(2 per share dividend.

7. On December 21, Evers Company declared a cash dividend of \)3 per share to be paid in the next month.

8. On December 31, 2018, the stocks had the following price per share values: Evers \(19 and Rogers \)21.

Instructions

(a) Prepare journal entries for each of the above transactions.

(b) Prepare a partial balance sheet showing the investment-related amounts to be reported on December 31, 2017, and 2018.

E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.

Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.
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