Chapter 25: Problem Set A

Problem C-1A: Recording and Adjusting Trading Debt Securities (P1) 1. Journal Entries: o Jan. 20: Purchase of Verizon Bonds  Debit: Trading Securities—Verizon $10,000  Credit: Cash $10,000 o Feb. 9: Purchase of Apple Bonds  Debit: Trading Securities—Apple $35,000  Credit: Cash $35,000 o June 12: Purchase of Mastercard Bonds  Debit: Trading Securities—Mastercard $20,000  Credit: Cash $20,000 o Apr. 15: Sale of Verizon Bonds (Gain = $2,100 - $2,000 = $100)  Debit: Cash $2,100  Credit: Trading Securities—Verizon $2,000  Credit: Gain on Sale of Securities $100 o July 5: Sale of Apple Bonds (Gain = $15,400 - $15,000 = $400)  Debit: Cash $15,400  Credit: Trading Securities—Apple $15,000  Credit: Gain on Sale of Securities $400 o July 22: Purchase of Walmart Bonds  Debit: Trading Securities—Walmart $40,000  Credit: Cash $40,000 o Aug. 19: Sale of Mastercard Bonds (Loss = $20,000 - $18,000 = $2,000)  Debit: Cash $18,000  Debit: Loss on Sale of Securities $2,000  Credit: Trading Securities—Mastercard $20,000 2. Year-End Comparison Table: Security Cost Fair Value Adjustment Verizon $8,000 $8,500 +$500 Apple $20,000 $22,000 +$2,000 Walmart $40,000 $39,000 -$1,000 3. Adjusting Entry (Net Adjustment = $500 + $2,000 - $1,000 = $1,500 Gain): o Debit: Fair Value Adjustment—Trading $1,500 o Credit: Unrealized Gain—Income $1,500 Problem C-2A: Recording, Adjusting, and Reporting Available-for-Sale Debt Securities (P3) 1. Journal Entries: o Year 1 Purchases:  Johnson & Johnson Bonds:  Debit: AFS Securities $20,500  Credit: Cash $20,500  Sony Notes:  Debit: AFS Securities $55,440  Credit: Cash $55,440  Mattel Bonds:  Debit: AFS Securities $40,500  Credit: Cash $40,500 o Year 1 Fair Value Adjustment (Net Gain = $3,910):  Debit: Fair Value Adjustment—AFS $3,910  Credit: Unrealized Gain—Equity $3,910 o Year 2 Sales and Purchases:  Sale of Johnson & Johnson Bonds (Gain = $23,500 - $20,500 = $3,000):  Debit: Cash $23,500  Credit: AFS Securities $20,500  Credit: Gain on Sale $3,000  Sale of Mattel Bonds (Loss = $35,850 - $40,500 = $4,650):  Debit: Cash $35,850  Debit: Loss on Sale $4,650  Credit: AFS Securities $40,500  Purchase of Sara Lee Notes:  Debit: AFS Securities $13,500  Credit: Cash $13,500  Purchase of Kodak Bonds:  Debit: AFS Securities $15,300  Credit: Cash $15,300 o Year 2 Fair Value Adjustment (Net Gain = $1,175):  Debit: Fair Value Adjustment—AFS $1,175  Credit: Unrealized Gain—Equity $1,175 2. Year-End Summary Table: Year-End Total Cost Total Fair Value Adjustment Total Fair Value Year 1 $116,440 $3,910 Dr $120,350 Year 2 $61,925 $5,085 Dr $67,010 Year 3 $185,025 $2,000 Cr $187,025 3. Unrealized Gains and Losses Summary: Year-End Realized Gain/Loss Unrealized Gain/Loss Year 1 $0 $3,910 Year 2 -$1,650 $1,175 Year-End Realized Gain/Loss Unrealized Gain/Loss Year 3 -$3,575 $2,000 Problem C-3A: Debt Investments in AFS Securities (P3) 1. Journal Entries for Transactions: o Sale of Company B Notes (Gain = $79,200 - Cost / 2): o Record each purchase and fair value adjustment similar to the format above. 2. December 31 Balance Sheet Reported Amount: Based on the remaining securities and year-end fair values. 3. Income Statement Reported Gains/Losses: Include realized gains or losses from sales and unrealized adjustments. Problem C-4A: Stock Investments with Insignificant Influence (P4) 1. Journal Entries: o Record all transactions, dividends, and fair value adjustments as illustrated in Problems C-1A and C-2A, including cost basis and gains/losses. 2. Fair Value Adjustment and Income Statement Impact: Calculate based on cost, fair value changes, and sales. Problem C-5A: Long-Term Investments with Significant Influence (P5) 1. Journal Entries for Equity Method: o Purchase, dividend receipt (reduce investment account), and share of investee income (increase investment account). 2. Problem C-6A: Without Significant Influence Adjustment o For insignificant influence, classify under AFS or Trading and use fair value adjustments rather than equity method.