Question

Problem 15-4A Recording, adjusting, and reporting stock investments with insignificant influence P41 Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short- term stock investments with insignificant influence. Apr. July Aug. 16 Purchased 3,500 shares of Gem Co. stock at $24 per share. 7 Purchased 2,000 shares of PepsiCo stock at $49 per share. 20 Purchased 1,000 shares of Xerox stock at $16 per share. 15 Received a $1.00 per share cash dividend on the Gem Co. stock. 28 Sold 2,000 shares of Gem Co. stock at $30 per share. 1 Received a $2.50 per share cash dividend on the PepsiCo shares. 15 Received a $1.00 per share cash dividend on the remaining Gem Co. shares. 31 Received a $1.50 per share cash dividend on the PepsiCo shares. Oct. Dec. Required 1. Prepare journal entries to record the preceding transactions and events. 2. Prepare a table to compare the year-end cost and fair values of Rose's short-term stock investments. The year-end fair values per share are Gem Co., $26; PepsiCo, $46; and Xerox, $13. Check (2) Cost = $150,000 3. Prepare an adjusting entry to record the year-end fair value adjustment for the portfolio of short-term stock investments. (3) Dr. Unrealized Loss-Income, $6,000

Answer 1

1.

Date	Account Titles	Debit	Credit
Apr-16	Investment in Securities - Gem Co.	$        84,000
	Cash		$        84,000
Jul-07	Investment in Securities - PepsiCo.	$        98,000
	Cash		$        98,000
Jul-20	Investment in Securities - Xerox	$        16,000
	Cash		$        16,000
Aug-15	Cash	$           3,500
	Dividend Revenue		$           3,500
Aug-28	Cash	$        60,000
	Investment in Securities - Gem Co.		$        48,000
	Gain on sale of investment		$        12,000
Oct-01	Cash	$           5,000
	Dividend Revenue		$           5,000
Dec-15	Cash	$           1,500
	Dividend Revenue		$           1,500
Dec-31	Cash	$           3,000
	Dividend Revenue		$           3,000

Instead of different accounts for investment, available for sale securities can also be used

2.

	Cost	Fair Value	Difference
Gem Co.	$        36,000	$        39,000	$           3,000
Pepsico	$        98,000	$        92,000	$         -6,000
Xerox	$        16,000	$        13,000	$         -3,000
Total	$     1,50,000	$     1,44,000	$         -6,000

3.

Account Titles	Debit	Credit
Investment in Securities - Gem Co.	$           3,000
Unrealized Gain-Income		$           3,000
Unrealized Loss-Income	$           6,000
Investment in Securities - PepsiCo.		$           6,000
Unrealized Loss-Income	$           3,000
Investment in Securities - Xerox		$           3,000