Q.10-22PGB_2
Question
Question: P10-22B Classifying and accounting for debt and equity investments
Captain Transfer Corporation generated excess cash and invested in securities as follows:
2018
Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.
Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.
Sep. 16 Sold the Naradon stock for \(13.70 per share.
Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.
Dec. 31 Received a \(600 interest payment from Purple.
31 Adjusted the Purple bond to its market value of \)44,000.
Requirements
Journalize the 2018 transactions. Explanations are not required.
Step-by-Step Solution
VerifiedAnswer
Both sides of the journal total $158,420.
The securities that were purchased with the primary motive of generating a profit by selling them over a short period are known as trading securities. These securities provide benefits when their value increases.
Date | Accounts and Explanation | Debit $ | Credit $ |
2 July 2018 | Equity investment | $54,600 |
|
| Cash |
| $54,600 |
|
|
|
|
21 Aug 2018 | Cash | $1,680 |
|
| Dividend revenue |
| $1,680 |
|
|
|
|
16 Sep 2018 | Cash | $57,540 |
|
| Equity investment |
| $54,600 |
| Gain on disposal |
| $2,940 |
|
|
|
|
1 Oct 2018 | Trading debt investment | $40,000 |
|
| Cash |
| $40,000 |
|
|
|
|
31 Dec 2018 | Cash | $600 |
|
| Interest revenue |
| $600 |
|
|
|
|
31 Dec 2018 | Fair value adjustment – trading debt | $4,000 |
|
| Unrealized holding gains |
| $4,000 |
|
| $158,420 | $158,420 |