Question

Required information Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities LO P3 [The following information applies to the questions displayed below.] Mead Inc. began operations in Year 1, following is a series of transactions and events involving its long-term debt investments in available-for-sale securities. Year 1 Jan. 20 Purchased Johnson & Johnson bonds for $28,500. Feb. 9 Purchased notes of Sony for $62,640. June 12 Purchased bonds of Mattel for $48,500. Dec. 31 Fair values for debt in the portfolio are Johnson & Johnson, $31,100; Sony, $53, 150; and Mattel, $56,950. Year 2 Apr. 15 Sold all of the bonds of Johnson & Johnson for $31,500. July 5 Sold all of the bonds of Mattel for $41,450. July 22 Purchased notes of Sara Lee for $19,900. Aug. 19 Purchased bonds of Kodak for $20,900. Dec. 31 Fair values for debt in the portfolio are Kodak, $22,125; Sara Lee, $20,000; and Sony, $64,000. Year 3 Feb. 27 Purchased bonds of Microsoft for $159,600. June 21 sold all of the notes of Sony for $64,000. June 30 Purchased bonds of Black & Decker for $58,400. Aug. 3 Sold all of the notes of Sara Lee for $16,950. Nov. 1 Sold all of the bonds of Kodak for $25,675. Dec. 31 Fair values for debt in the portfolio are Black & Decker, $59,400; and Microsoft, $160,200.

Answer 1

YEAR 1

Fair Value Adjustment - AFS A/C DR 1,560

Unrealized gain - Equity 1,560

	Purchased Price	Fair Value
Johnson & Johnson	28,500	31,100	2,600
Sony	62,640	53,150	(9,490)
Mattel	48,500	56,950	8,450
Total	139,640	141,200	1,560

YEAR 2

Fair Value Adjustment - AFS A/C DR 12,175

Unrealized gain - Equity 12,175

	Purchased Price	Fair Value
Sara Lee	19,900	20,000	100
Kodak	20,900	22,125	1,225
Sony	53,150	64,000	10,850
Total	93,950	106,125	12,175

Note: Sony Price is taken as Fair market value at the end of Year 1

YEAR 3

Fair Value Adjustment - AFS A/C DR 1,600

Unrealized gain - Equity 1,600

	Purchased Price	Fair Value
Microsoft	159,600	160,200	600
Black & Decker	58,400	59,400	1,000
Total	218,000	219,600	1,600