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23 Nov 2019

. In Year One, Waterloo Corporation makes an investmentin the equity securities of another company for $53,000. Thecompany then collects a cash dividend of $2,000. At the end of YearOne, this investment is valued at $58,000. In March of Year Two,the entire investment is sold for cash of $54,000. Waterlooreported this investment as being in available-for-sale securities.How would Waterlooâs reported net income have been different ineach of these two years if the investment had been reported as atrading security?

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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.

PAGE 8

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	DEBIT	CREDIT	ASSETS	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

Green Corporation acquired45,000 shares of the outstanding common stock of Brown Company for$14.00 per share.
The following events occurred during the year.

6/15/2015	Brown declared and paid $0.75 per share cash dividend.
12/10/2015	Brown declared and paid $0.80 per share cash dividend.
12/31/2015	Brown reported net income for the year of $425,000.The market price of Brown common stock was $17 per share on thelast day of the year.

Instructions:
(a) Prepare the journal entries for Green in 2015,assuming that the purchase of Brown stock constituted less than 10%of Brown's outstanding shares.
Green treats this investment as available-for-salesecurities.

(b) Prepare the journal entries for Green in 2015,assuming that the purchase of Brown stock constituted 32% ofBrown's outstanding shares.


Solutions:
Date	Account	Debit	Credit
	Less than 10% ownership:

1/1/2015	Available-for-sale Securities	630,000
	Cash		630,000
	45,000 sh x $14

6/15/2015	Cash	33,750
	Dividend Revenue		33,750
	45,000 sh x $0.75

12/10/2015	Cash	36,000
	Dividend Revenue		36,000
	45,000 sh x $0.80

12/31/15	Available-for-sale Securities	135,000
	Unrealized Gain onAvailable-for-sale Securities		135,000
	45,000 x $17 =$765,000 - $630,000 =$135,000


	32% ownership:

1/1/2015	Investment in Brown Company	630,000
	Cash		630,000
	45,000 sh x $14

6/15/2015	Cash	33,750
	Investment in BrownCompany		33,750
	45,000 sh x $0.75

12/10/2015	Cash	36,000
	Investment in BrownCompany		36,000
	45,000 sh x $0.80

12/31/2015	Investment in Brown Company	136,000
	Income from BrownCompany		136,000
	$425,000 x 32%

ceruleanrat282

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.

PAGE 8

JOURNAL

	DATE	DESCRIPTION	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	?

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