Supplemental Material for "Introduction to Accounting"

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E 12-11 Investment in Trading Securities—Journal Entries

Prepare the journal entries to account for the following investment transactions of Samuelson Company:

2011
July 1	Purchased 350 shares of Bateman Company stock at $22 per share plus a brokerage fee of $600. The Bateman stock is classified as trading.
Oct. 31	Received a cash dividend of $2.00 per share on the Bateman stock.
Dec. 31	At year-end, Bateman stock had a market price of $19 per share.
2012
Feb. 20	Sold 175 shares of the Bateman stock for $26 per share.
Oct. 31	Received a cash dividend of $2.20 per share on the Bateman stock.
Dec. 31	At year-end, Bateman stock had a market price of $29 per share.

E 12-12 Investment in Trading Securities—Journal Entries

In June 2012, Hatch Company had no investment securities but had excess cash that would not be needed for nine months. Management decided to use this money to purchase trading securities as a short-term investment. The following transactions relate to the investments:

July 16	Purchased 4,000 shares of Eli Corporation stock. The price paid, including brokerage fees, was $62,400.
Sept. 23	Received a cash dividend of $1.25 per share on the Eli stock.
28	Sold 2,000 shares of Eli stock at $16 per share. Paid a selling commission of $250.
Dec. 31	The market value of Eli's stock was $16.35 per share.

Given these data, prepare the journal entries to account for Hatch's investment in Eli stock.

E 12-13 Investment in Available-for-Sale Securities—Journal Entries

Bird Beak Corporation made the following available-for-sale securities transactions:

Jan. 14	Purchased 4,000 shares of Pinegar Corporation common stock at $20.80 per share.
Mar. 31	Received a cash dividend of $0.25 per share on the Pinegar stock.
Aug. 28	Sold 1,600 shares of Pinegar stock at $22.60 per share.
Dec. 31	The market value of the Pinegar stock was $24 per share.

Prepare journal entries to record the transactions.

E 12-14 Investment in Securities

In January 2010, Solitron, Inc., determined that it had excess cash on hand and decided to invest in Horner Company stock. Solitron intends to hold the stock for a period of three to five years, thereby making the investment an available-for-sale security. The following transactions took place in 2010, 2011, and 2012:

2010
Jan. 17	Purchased 2,750 shares of Horner stock for $89,500.
May 10	Received a cash dividend of $1.30 per share on Horner stock.
Dec. 31	The market value of the Horner stock was $30 per share.
2011
May 22	Purchased 750 shares of Horner stock at $40 per share.
July 18	Received a cash dividend of $0.90 per share on the Horner stock.
Dec. 31	The market value of the Horner stock was $42 per share.
2012
June 7	Received a cash dividend of $1 per share on the Horner stock.
Oct. 5	Sold the Horner stock at $27 per share for cash.
Dec. 31	The market value of the Horner stock was $25 per share.

Prepare the journal entries required to record each of these events.

2010 Jan. 17

Investment in Available-for-Sale Securities, Horner Company	89,500
Cash		89,500
Purchased bonds paying $89,500.

May 10

Cash	3,575
Interest Revenue		3,575
Received interest on the Horner Company bonds of $3,575.

Dec. 31

Unrealized Increase/Decrease in Value of Available- for-Sale Securities—Equity	7,000
Market Adjustment—Available-for-Sale Securities		7,000
To decrease value of securities to market value using market adjustment account ($89,500 – $82,500 = $7,000).

2011 May 22

Investment in Available-for-Sale Securities, Horner Company	30,000
Cash		30,000
Purchased an additional $30,000 of Horner bonds.

July 18

Cash	4,770
Interest Revenue		4,770
Received interest on the Horner Company bonds of $4,770.

2011 Dec. 31

Market Adjustment—Available-for-Sale Securities	34,500
Unrealized Increase/Decrease in Value of Available-for-Sale Securities—Equity		34,500
To adjust portfolio of available-for-sale securities to market given a credit balance in the market adjustment account from the prior period of $7,000. $147,000 – $119,500 = $27,500 + $7,000 = $34,500.

2012 June 7

Cash	4,770
Interest Revenue		4,770
Received interest on the Horner Company bonds of $4,770.

Oct. 5

Cash	94,500
Realized Loss on Sale of Available-for-Sale Securities	25,000
Company		119,500
To record sale of all bonds for $94,500. Loss on sale = $119,500 – $94,500.

Dec. 31

Unrealized Increase/Decrease in Value of Available-for-Sale Securities—Equity	27,500
Market Adjustment—Available-for-Sale Securities		27,500
Eliminate market adjustment account as all available-for-sale securities have been sold. Balance prior to adjustment is $27,500 ($34,500 debit – $7,000 credit).

E 12-15 Investment in Equity Securities

During 2010, JAT Company purchased trading securities as a short-term investment. The costs of the securities and their market values on December 31, 2012, are listed below.

Security	Cost	Market Value (December 31, 2012)
A	$400,000	$200,000
B	200,000	225,000
C	500,000	600,000

JAT had no trading securities in the years before 2012. Before any adjustments related to these trading securities, JAT had net income of $900,000 in 2012.

What is net income (ignoring income taxes) after making any necessary trading security adjustments?
What would net income be if the market value of Security A were $350,000?

E 12-16 Investment in Debt and Equity Securities

In February 2012, Packard Corporation purchased the following securities. Prior to these purchases, Packard had no portfolio of investment securities.

Security	Type	Classification	Cost
1	Debt	Trading	$11,500
2	Equity	Trading	9,000
3	Equity	Available-for-sale	7,250
4	Debt	Available-for-sale	12,300

During 2012, Packard received $2,400 in interest and $1,800 in dividends. On December 31, 2012, Packard's portfolio of securities had the following market values:

Security	Fair Market Value
1	$12,000
2	8,750
3	7,500
4	12,500

Prepare the journal entries required to record each of these transactions.

E 12-17 Investment in Debt and Equity Securities

Andrews, Inc., purchased the following securities during 2012:

Security	Type	Classification	Cost
1	Debt	Trading	$ 2,400
2	Equity	Trading	3,500
3	Debt	Available-for-sale	4,200
4	Equity	Available-for-sale	1,800
5	Debt	Held-to-maturity	11,000

During 2012, Andrews received interest of $1,400 and dividends of $600 on its investments. On September 29, 2012, Andrews sold one-half of Security 1 for $1,600. On December 31, 2012, the portfolio of securities had the following fair market values:

Security	Fair Market Value
1	$ 1,700
2	3,600
3	4,000
4	1,900
5	12,000

Andrews had no balance in its market adjustment accounts at the beginning of the year. Prepare the journal entries required to record the purchase of the securities, the receipt of interest and dividends, the sale of securities, and the adjustments required at year-end.

E 12-18 Investment in Securities—Changes in Value

Sharp, Inc., had the following portfolio of investment securities on January 1, 2012:

Security	Type	Classification	Historical Cost	Fair Market Value (1/1/12)
1	Debt	Trading	$1,000	$ 800
2	Equity	Trading	1,250	1,100
3	Debt	Trading	1,700	1,650
4	Debt	Available-for-sale	2,200	2,150
5	Debt	Held-to-maturity	1,800	1,750

Appropriate adjustments have been made in prior years. No securities were bought or sold during 2012. On December 31, 2012, Sharp's portfolio of securities had the following fair market values:

Security	Fair Market Value (12/31/12)
1	$ 650
2	1,200
3	1,700
4	2,250
5	1,850

Prepare the necessary adjusting entry (or entries) on December 31, 2012.

E 12-19 Investment in Securities—Changes in Value

Indonesia, Inc., held the following portfolio of securities on December 31, 2011 (the end of its first year of operations):

	Cost	Market Value (12/31/11)
Trading securities	$55,000	$45,000
Available-for-sale securities	80,000	90,000
Held-to-maturity securities	75,000	80,000

No additional securities were bought or sold during 2012. On December 31, 2012, Indonesia's securities had a fair market value of:

Trading securities	$50,000
Available-for-sale securities	93,000
Held-to-maturity securities	70,000

Prepare the entries required at the end of 2011 and 2012 to properly adjust Indonesia's portfolio of securities.