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Accounting for Investments
In 2013, Western Community Hospital, a private facility, receives donated securities with a fair market value and face value of $400,000. The donor specifies that the securities be held as a permanent endowment, and investment income earned on these securities can be used for any purpose. The securities have a fair market value of $360,000 at the end of 2013, and $450,000 at the end of 2014. Dividend income earned on the securities in each of the two years is $10,000
Required
a. Prepare the journal entries to record the above events in 2013 and 2014. Indicate the balance of each account and its placement in the financial statements.
2013 Journal Entries
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the contribution. | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the investment income. | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the change in value of securities. | ||
Use a negative sign with unrealized gain (loss) answer to indicate an unrealized loss.
| Account balances at the end of 2013 | ||
|---|---|---|
| Investment in securities | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
| Contributions | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
| Investment income | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
| Unrealized gain (loss) | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
2014 Journal Entries
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the investment income. | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the change in value of the securities. | ||
Use a negative sign with unrealized gain (loss) answer to indicate an unrealized loss.
| Account balances at the end of 2014 | ||
|---|---|---|
| Investment in securities | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
| Investment income | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
| Unrealized gain (loss) | $Answer | AnswerAsset in statement of financial positionIncrease in permanently restricted net assets on statement of activitiesIncrease in unrestricted net assets on statement of activitiesIncrease in permanently restricted net assets on statement of activitiesDecrease in permanently restricted net assets on statement of activitiesDecrease in unrestricted net assets on statement of activities |
Required
b. Assume the same facts as above, except the donation was $400,000 in cash, and the hospital invested the $400,000 in debt securities. How do the entries in a. change?
| General Journal | ||
|---|---|---|
| Description | Debit | Credit |
| 2013 entries: | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the contribution. | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the investment in securities. | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the change in value of securities. | ||
| 2014 entries: | ||
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| AnswerInvestment in securitiesContributions (PR)CashInvestment income (UR)Unrealized loss (PR)Unrealized gain (PR)Restricted cashUnrealized loss (UR)Unrealized gain (UR) | Answer | Answer |
| To record the change in value of the securities. | ||
