Question

American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2021, gains from selling trading securities totaled $7 million, losses from selling trading securities were $10 million, and the company had earned $5 million in interest revenue. The following selected transactions relate to American's investments in trading securities and equity securities during December 2021, and the first week of 2022. The company's fiscal year ends on December 31. No trading securities or equity investments were held by American on December 1, 2021. Assume that the bonds are purchased at face value. 2021 Dec. 12 Purchased FF&G Corporation bonds for $15 million. 13 Purchased 2 million shares of Ferry Intercommunications common stock for $30 million. American does not have significant influence over Ferry's operations or policies. 15 Sold the FF&G Corporation bonds for $15.7 million. 22 Purchased U.S. Treasury bills for $80 million and Treasury bonds for $81 million. 23 Sold half the shares of Ferry Intercommunications common stock for $12 million. 26 Sold the U.S. Treasury bills for $84 million. 27 Sold the Treasury bonds for $75 million. 28 Received cash dividends of $200,000 from the Ferry Intercommunications common stock shares. 31 Recorded any necessary adjusting entry relating to the remaining investment. The market price of the Ferry Intercommunications stock was $12 per share. 2022 Jan. 2 Sold the remaining Ferry Intercommunications common stock shares for $12.1 million. 5 Purchased Warehouse Designs Corporation bonds for $50 million. Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021 including any year-end adjusting entries. 2. Indicate any amounts that American would report in its 2021 balance sheet and income statement as a result of these investments 3. Prepare the appropriate journal entry for each transaction or event during 2022

Answer 1

1. Amount in million ($)

	Date	Account Titles	Debit	Credit
1	Dec-12	Investment in Bonds & Fair Value Adj	15
		Cash		15
2	Dec-13	Investment in Eq Securities & Fair Value Adj	30
		Cash		30
3	Dec-15	Investment in Bonds & Fair Value Adj	0.7
		Gain on sale of Investments		0.7
4	Dec-15	Cash	15.7
		Investment in Bonds & Fair Value Adj		15.7
5	Dec-22	Investment in Bonds & Fair Value Adj	161
		Cash		161
6	Dec-23	Loss on sale of Investments	3
		Investment in Eq Securities & Fair Value Adj		3
7	Dec-23	Cash	12
		Investment in Eq Securities & Fair Value Adj		12
8	Dec-26	Investment in Bonds & Fair Value Adj	4
		Gain on sale of Investments		4
9	Dec-26	Cash	84
		Investment in Bonds & Fair Value Adj		84
10	Dec-27	Loss on sale of Investments	6
		Investment in Bonds & Fair Value Adj		6
11	Dec-27	Cash	75
		Investment in Bonds & Fair Value Adj		75
12	Dec-28	Cash	0.2
		Dividend Revenue		0.2
13	Dec-31	Unrealised Loss on sale of Investments	3
		Investment in Eq Securities & Fair Value Adj		3

Balance Sheet
Current Assets
Cash	-19.1
Dividend Receivable	0
Total	-19.1
Non Current Assets
Investment in Eq. Securities & Fair Value Adj	12
Income Statement
Other Revenue (Expenses)
Dividend Revenue	0.2
Total Interest and Dividend Revenue	0.2
Gain (Loss) on Investments
Gain on sale of FF&G Corp Bonds	0.7
Loss on sale of Ferry Communications	-3
Gain on sale of US Treasury Bills	4
Loss on sale of Treasury Bonds	-6
Unrealised Loss on Ferry Communications	-3
	-7.3
Total Other Revenue (Expenses)	-7.1

	Date	Account Titles	Debit	Credit
1	Jan-02	Investment in Eq Securities & Fair Value Adj	0.1
		Gain on sale of Investments		0.1
2	Jan-02	Cash	12.1
		Investment in Eq Securities & Fair Value Adj		12.1
3	Jan-05	Investment in Bonds & Fair Value Adj	50
		Cash		50