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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 On October 4, 2019, Collins Company purchased 100 bonds of Steph Company for $6,400 as a short-term investment in securities classified as available for sale. On December 31, 2019, the bonds had a fair value of $6,300, and on February 8, 2020, Collins sold the bonds for $6,700.

Required:

In journal entry form, prepare the spreadsheet entries to record these transactions for Collins Company’s 2019 and 2020 statement of cash flows.

To determine

Journalize the spread sheet entry to record the investment available for sale securities for the year 2019 and 2020.

Explanation

Statement of cash flows: Statement of cash flow reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Available for sale securities: These are short-term or long-term investments in debt and equity securities with an intension of holding the investment for some strategic purpose like meeting liquidity needs, or manage interest risk.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders equities.
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Journalize the spreadsheet entry to record investment available for sale securities as on year 2019.

DateAccounts and ExplanationDebit ($)Credit ($)
4th October 2019Investment in Available for sale securities6,400 
                 purchase of investment available for sale securities 6,400
 (To record the investment in securities available for sale) 
31st December 2019Unrealized Decrease in investment available for sale securities (Working note a)100 
                 Allowance for change in value of investment 100
 (To record unrealized decrease in investment available for sale securities)  

Table (1)

Working note 1:

Calculate temporary investment available-for-sale securities:

Temporary investment available-for-sale securities}=(Purchases number of common stock×Rate per share)=$100$64=$6,400

Working note 2:

Calculate the unrealized decrease in investment available for sale securities

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