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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Investments in Trading Securities During 2019, Francis Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Francis’s 2019 marketable security transactions:

Chapter 13, Problem 8P, Investments in Trading Securities During 2019, Francis Company decided to begin investing its idle

Required:

  1. 1. Record Francis’s investment transactions for 2019.
  2. 2. Show the items of income or loss on the trading investments Francis reports on its 2019 income statement.
  3. 3. Show the carrying value of Francis’s investment account on its December 31, 2019, balance sheet.

1.

To determine

Prepare the journal entry to record the investment transactions for 2019.

Explanation

Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

Prepare the journal entry to record the investment transactions for 2019.

DateAccount Title and Explanation

Debit

($)

Credit ($)
April 1, 2019Investment in trading securities50,000 
 Interest income ($50,000×0.12×312)1,500 
     Cash 51,500
 (To record the purchase of trading securities)  
    
June 30, 2019Cash3,000 
     Interest income     ($50,000×0.12×612) 3,000
 (To record the receipt of the interest income)  
    
November 1, 2019Investment in trading securities60,000 
 Interest income ($60,000×0.11×512)2,750
     Cash 62,750
 (To record the additional investment made in trading securities)  
    
December 1, 2019Cash3,300 
    Interest income     ($60,000×0

2.

To determine

Show the items that would be reported as income or loss from the investment in the income statement.

3.

To determine

Show the way in which the investments items are reported in the 2019 balance sheet.

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