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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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Available-for-Sale Securities Holly Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in available-for-sale debt securities:

Chapter 13, Problem 9P, Available-for-Sale Securities Holly Company invests its excess cash in marketable securities. At the , example  1

During 2019, the following transactions occurred:

Chapter 13, Problem 9P, Available-for-Sale Securities Holly Company invests its excess cash in marketable securities. At the , example  2

The December 31 closing market prices were as follows: Igor Company bonds, $9,000; and Union Company 8% bonds, $10,100. Holly uses the straight-line method to amortize any discounts or premiums.

Required:

  1. 1. Prepare journal entries to record the preceding information.
  2. 2. Show what is reported on Holly’s 2019 income statement.
  3. 3. Assuming the investment in Igor Company bonds is considered to be a current asset and the investment in Union Company bonds is considered to be a noncurrent asset, show how all the items arc reported on Holly’s December 31, 2019, balance sheet.
  4. 4. What is Holly’s unrealized holding gain or loss on available-for-sale securities in 2019?

1.

To determine

Prepare the journal entries to record the available-for-sale securities transactions.

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.

Available for sale securities: these are the securities which are not intended to be sold in the near future and there is no intension to hold the securities till their maturity.

Prepare the journal entries to record the available-for-sale securities transactions.

DateAccount Title and Explanation Debit Credit 
March 31, 2019Investment in Available-for-sale Securities$10,000 
 Interest income$200 
         Cash $10,200
 (To record the purchase of 8% bond from Company U)  
    
March 31, 2019Interest receivable ($20,000×6%×312)$300 
 

     Investment in Available-for-sale Securities

     ($3,1005 years×312)

 $155
     Interest income ($300$155) $145
 (To record the interest income earned on Company O’s bond)  
    
March 31, 2019Cash ($22,000+$300)$22,300 
 

Loss on sale of available-for-sale securities

($22,000$22,945)

$945 
 

      Investment in available-for-sale securities

     ($23,100$155)

 $22,945
       Interest receivable $300
 (To record the sale of Company O’s investment)  
    
March 31, 2019Allowance for change in fair value of investment$1,400 
 

     Unrealized holding gain / loss: Available-

     for-sale securities ($21,700$23,100)

 $1,400
 (To record the allowance adjustment and reverse the unrealized loss on holding the Securities)  
    
June 30, 2019Cash$400 
       Interest income ($10,000×0

2.

To determine

Show the manner in which Company H would report its available-for-sale securities at its income statement for the year ended December 31, 2019.

3.

To determine

Show the way in which Company H would report its available-for-sale securities at its balance sheet at December 31, 2019.

4.

To determine

Determine the amount of unrecognized holding gain for 2019.

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