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 $8 million, losses from selling trading securities were $11 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 $12 million. 13 Purchased 2 million shares of Ferry Intercommunications common stock for $22 million. American does not have significant influence over Ferry's operations or policies. 15 Sold the FF&G Corporation bonds for $12.1 million. 22 Purchased U.S. Treasury bills for $56 million and Treasury bonds for $65 million. 23 Sold half the shares of Ferry Intercommunications common stock for $10 million. 26 Sold the U.S. Treasury bills for $57 million. 27 Sold the Treasury bonds for $63 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 $10 per share. 2022 Jan. 2 Sold the remaining Ferry Intercommunications common stock shares for $10.2 million. 5 Purchased Warehouse Designs Corporation bonds for $34 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

Answert Non Dec-12 TO cash Ś12 183) Journal Entries Date particulars LF Debit in Hilfred 2021 Investment in FFC G Donds Ale Ox $12 |[Being the purchase # FF&G Bonds] |DeGrs Investment in Ferry common shares they To cash Being the purchase of ferry common shavery Pecis cash ale DY TO Investment in FFBG Bonds • To Gain on sale of investment Isle $22 $12.10 $19 Being sale of FF & G Bonds] $65 $121 Dec-2 $10 - $57 $ 56 Inveslment in Us. Treasury bills tle or Investment in Us Treasury Bonds te of To cash Deing purchase of us Treasury bills and Bonds cash ale or Loss on sale of Investments Ale or To Investment in Ferry common shares Being sale of the half of the shares of 1 Ferry] Dec-26 cash ale 1. To Investment in us Treasury bills To Gain on sale of investment Being sale of us Treasury bills] or Dec-27 Cash Ale. Loss on sale of investments Ale or 1. To Investment in us Treasury bonds Being Sale $ Us Treasury Bonds] Deces Cash Ale y - To Investment Revenue Being Dividend record from ferry Dec-31 Net aingealized holding said toss He DX TO Fair value of adjustment being fair value adjustment of Afs inwestamelot $63 32 ! $0.00 $ 0.20 $1 !

creditore Jan-2 Journal entries Ibate | particulars Debilivi 2022 cash Ale | $10.20 Loss on sale of Investmenit Ale or $0.80 - To Investment in ferry common Shares Being sale of ferry common shares] Sau-s Investment in warehouse bondo ale pr 1 $34 1. To cash Being purchase of warehouse bonds 7 2) Income statement for the year 2021. | $34 Investment Revenue $0.20 Gain on sale of investments | $1.10 Less's koss ou falet investment ($3.00) Net un realized holdiq gairkoss $1.00 Balance sheet partial] - Assets Short Term investment: Investment in Ferry common shares $11 Lesset Fair valuve adjustments (1) $10