ACG 2021 Lecture Notes - Lecture 15: Fair Market Value, Consolidated Financial Statement, Financial Statement
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You are working for The Wellington Company on temporary assignment while one of the accountants is on family leave. You have been asked to review the companyâs investment
The balance sheet caption used to report long-term investments in stocks not intended as a source of cash in the normal operations of the business.
journal entries and provide necessary information to the accountant preparing the financial statements.
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JOURNAL
| DATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT | |
|---|---|---|---|---|---|
| 1 | Jan. 17 | Investment-Red Rock Co. Stock | 37,400.00 | ||
| 2 | Cash | 37,400.00 | |||
| 3 | Feb. 5 | Investment-Sunset Village Bonds | 34,000.00 | ||
| 4 | Interest Receivable | 290.00 | |||
| 5 | Cash | 34,290.00 | |||
| 6 | 23 | Investment-Mays and Co. Stock | 25,500.00 | ||
| 7 | Cash | 25,500.00 | |||
| 8 | Mar. 31 | Cash | 340.00 | ||
| 9 | Interest Receivable | 290.00 | |||
| 10 | Interest Revenue | 50.00 | |||
| 11 | Apr. 6 | Investment in Minions Corp. Stock | 170,000.00 | ||
| 12 | Cash | 170,000.00 | |||
| 13 | 30 | Cash | 750.00 | ||
| 14 | Dividend Revenue | 750.00 | |||
| 15 | Jul. 1 | Cash | 18,162.00 | ||
| 16 | Loss on Sale of Investments | 2,448.00 | |||
| 17 | Interest Revenue | 210.00 | |||
| 18 | Investment-Sunset Village Bonds | 20,400.00 | |||
| 19 | Aug. 14 | Cash | 41,300.00 | ||
| 20 | Gain on Sale of Investments | 1,800.00 | |||
| 21 | Investment-Harding Construction Stock | 39,500.00 | |||
| 22 | 27 | Cash | 3,400.00 | ||
| 23 | Investment in Minions Corp. Stock | 3,400.00 | |||
| 24 | Sep. 22 | Cash | 29,000.00 | ||
| 25 | Gain on Sale of Investments | 3,500.00 | |||
| 26 | Investment-Mays and Co. Stock | 25,500.00 | |||
| 27 | 30 | Cash | 130.00 | ||
| 28 | Interest Revenue | 130.00 | |||
| 29 | Nov. 1 | Investment in Minions Corp. Stock | 15,300.00 | ||
| 30 | Income of Minions Corp. | 15,300.00 | |||
| 31 | Dec. 31 | Unrealized Loss on Available-For-Sale Investments | 3,275.00 | ||
| 32 | Valuation Allowance for Available-For-Sale Investments | 3,275.00 | |||
| 33 | 31 | Valuation Allowance for Trading Investments | 2,150.00 | ||
| 34 | Unrealized Gain on Trading Investments | 2,150.00 |
The accountant preparing the financial statements has asked you to provide the fair value as of the end of the year for the investments. Present the information as it would be shown on the financial statements. Last year, The Wellington Company reported costs of $68,000 in trading investments and $82,000 in available-for-sale investments. Refer to the journal entries shown on The Wellington Company panel. Assume that all investments sold during this year were trading investments and that purchases during the year were new investments.
| Trading Securities | |
| Trading investments at cost | ? |
| Plus valuation allowance for trading investments | 2150 |
| Trading investments at fair value | ? |
| Available-For-Sale Securities | |
| Available-for-sale investments at cost | ? |
| Less valuation allowance for available-for-sale investments | 3275 |
| Available-for-sale investments at fair value | ? |
Trading Securities
Southeast Bank invests in trading securities and preparesquarterly financial statements. At the beginning of the fourthquarter of 2013, the bank held as trading securities 250 shares ofEglan Company common stock that originally cost $6,875. At thattime, these securities had a fair value of $6,500. During thefourth quarter, the bank engaged in the following tradingsecurities transactions:
Oct. 26 Purchased 280 shares of Farrell Companycommon stock for $35 per share.
Nov. 26 Sold 250 shares of Eglan common stock for $24 pershare.
Dec. 10 Purchased 460 shares of Gray Company commonstock for $40 per share.
On December 31, 2013, the quoted market prices of the shareswere as follows: Eglan Company, $52 per share; Farrell Company, $38per share; and Gray Company, $39 per share.
1. Prepare journal entries to record the preceding informationfor the fourth quarter. For compound entries, if an amount box doesnot require an entry, leave it blank.
| 2013 | investments in trading securities | $????? | |
| Oct 6 | cash | $????? | |
| Nov 26 | cash | $????? | |
| loss on sale of trading securities | $????? | ||
investments in trading securities | $????? | ||
| Dec 10 | investments in trading securities | $????? | |
| cash | $????? | ||
| Dec 31 | investments in trading securities | $????? | |
| unrealized holding gain/loss: trading securities | $????? |
2. Show what the bank reports on its fourth quarter 2013 incomestatement for these trading securities.
| loss on sale of trading securities | $????? |
| unrealized holding gain | $????? |
3. Show how the bank reports these trading securities on itsbalance sheet at the end of the fourth quarter of 2013.
current assets:
| investments in trading securities (at fair value) | $????? |
posting for sec times any incomplete work will bereported answer all 2 parts investment 1 to 7 and finacial statmentand valution 1 to 6
You are working for The Wellington Company on temporaryassignment while one of the accountants is on family leave. Youhave been asked to review the companyâs investment journal entriesand provide necessary information to the accountant preparing thefinancial statements.
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JOURNAL
ACCOUNTING EQUATION
| DATE | DESCRIPTION | POST.REF. | DEBIT | CREDIT | ASSETS | LIABILITIES | EQUITY | |
|---|---|---|---|---|---|---|---|---|
1 | Jan. 17 | Investments-Red Rock Co. Stock | 38,500.00 | ? | ||||
2 | Cash | 38,500.00 | ? | |||||
3 | Feb. 5 | Investments-Sunset Village Bonds | 35,000.00 | ? | ||||
4 | Interest Receivable | 300.00 | ? | |||||
5 | Cash | 35,300.00 | ? | |||||
6 | 23 | Investments-Mays and Co. Stock | 26,250.00 | ? | ||||
7 | Cash | 26,250.00 | ? | |||||
8 | Mar. 31 | Cash | 350.00 | ? | ||||
9 | Interest Receivable | 300.00 | ? | |||||
10 | Interest Revenue | 50.00 | ? | |||||
11 | Apr. 6 | Investment in Minions Corp. Stock | 175,000.00 | ? | ||||
12 | Cash | 175,000.00 | ? | |||||
13 | 30 | Cash | 750.00 | ? | ||||
14 | Dividend Revenue | 750.00 | ? | |||||
15 | Jul. 1 | Cash | 18,690.00 | ? | ||||
16 | Loss on Sale of Investment | 2,520.00 | ? | |||||
17 | Interest Revenue | 210.00 | ? | |||||
18 | Investments-Sunset Village Bonds | 21,000.00 | ? | |||||
19 | Aug. 14 | Cash | 41,300.00 | ? | ||||
20 | Gain on Sale of Investments | 1,800.00 | ? | |||||
21 | Investments-Harding Construction Stock | 39,500.00 | ? | |||||
22 | 27 | Cash | 3,500.00 | ? | ||||
23 | Investment in Minions Corp. Stock | 3,500.00 | ? | |||||
24 | Sep. 22 | Cash | 29,750.00 | ? | ||||
25 | Gain on Sale of Investments | 3,500.00 | ? | |||||
26 | Investments-Mays and Co. Stock | 26,250.00 | ? | |||||
27 | 30 | Cash | 140.00 | ? | ||||
28 | Interest Revenue | 140.00 | ? | |||||
29 | Nov. 1 | Investment in Minions Corp. Stock | 15,750.00 | ? | ||||
30 | Income of Minions Corp. | 15,750.00 | ? | |||||
31 | Dec. 31 | Unrealized Loss on Available-For-Sale Investments | 3,275.00 | ? | ||||
32 | Valuation Allowance for Available-For-Sale Investments | 3,275.00 | ? | |||||
33 | 31 | Valuation Allowance for Trading Investments | 2,150.00 | ? | ||||
34 | Unrealized Gain on Trading Investments | 2,150.00 | ? |
Investments
Review the journal entries on The Wellington Company panel thenanswer the following questions.
| 1. | Which item is likely to be atrading security? Mays and Co. Why? |
| 2. | How are brokerage commission feestreated on stock sales vs. stock purchases? |
| 3. | Based on these journal entries,what is the companyâs investment in Sunset Village bonds at the endof the year? |
| 4. | The journal entry on Aug. 27 mostlikely shows |
| 5. | As an investment, bonds are alwayscategorized as |
| 6. | What is the companyâs investment inMinions Corp. at the end of the year? |
7. Which of the following investments are likely to beavailable-for-sale securities? Check all that apply.
Harding Construction stock
Mays and Co. stock
Cannot be determined
Red Rock Co. stock
Sunset Village bonds
Minions Corp. stock
Financial Statements and Valuation
The accountant preparing the financial statements has asked youto provide the fair value as of the end of the year for theinvestments. Present the information as it would be shown on thefinancial statements. Last year, The Wellington Company reportedcosts of $68,000 in trading investments and $82,000 inavailable-for-sale investments. Refer to the journal entries shownon The Wellington Company panel. Assume that all investments soldduring this year were trading investments and that purchases duringthe year were new investments.
1. Select the correct label for each line and fill in theamount. In classifying the investments, choose a categorizationwhich seems most likely, given the pattern of transactions in thejournal entries. Enter all amounts as positive numbers. If anamount box does not require an entry, leave it blank.
| Trading Securities | |
| Available-For-Sale Securities | |
| 2. Where on the balance sheet dotrading securities appear? | |
| 3. Where is the gain or loss fromthe change in value of available-for-sale securities reported inthe financial statements? | |
| 4. Where are held-to-maturitysecurities reported? Based on the journal entries for this year,does the company have any held-to-maturity securities? | |
| 5. Where are securities held forstrategic reasons reported in the financial statements when usingthe equity method? Based on the journal entries for this year, doesThe Wellington Company have any equity securities? |
6. Which of the following items does not affect net income?Check all that apply.
only unrealized gains or losses for all investments
realized loss on available-for-sale securities
realized gain on trading securities
none of these answers is correct
both gains and losses of any sort for all investments
unrealized loss on trading securities
unrealized gain on available-for-sale securities