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 2018, gains from selling trading securities totaled $5 million, losses were $9 million, and the company had earned $5 million in investment revenue. The following selected transactions relate to American's trading account and equity securities investment account during December 2018, and the first week of 2019. The company's fiscal year ends on December 31. No trading securities were held by American on December 1, 2018 2018 Dec. 12 Purchased FF&G Corporation bonds for $18 million. 13 Purchased 2 million Ferry Intercommunications common shares for $34 million 15 Sold the FF&G Corporation bonds for $18.6 million. 22 Purchased U.S. Treasury bills for $60 million and Treasury bonds for $71 million 23 Sold half the Ferry Intercommunications common shares for $13 million. 26 Sold the U.S. Treasury bills for $66 million 27 Sold the Treasury bonds for $65 million. 28 Received cash dividends of $200,000 from the Ferry Intercommunications common shares. 31 Recorded any necessary adjusting entry (s) and closing entries relating to the investments. The market price of the Ferry Intercommunications stock was $13 per share. 2019 Jan. 2 Sold the remaining Ferry Intercommunications common shares for $13.1 million. 5 Purchased Warehouse Designs Corporation bonds for $40 million. Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018 2. Indicate any amounts that American would report in its 2018 balance sheet and income statement as a result of these investments. 3. Prepare the appropriate journal entry for each transaction or event during 2019

Answer 1

Ans 1	Date	Acount Head and Details	Debit	Credit
	12-Dec-13	Investment in Bonds -Held for trading	18
		Cash		18
	13-Dec-13	Investment in Equity stock-Held for trading	34
		Cash		34
	15-Dec-13	Cash	18.6
		Gain on sale of investment in Bonds		0.6
		Investment in Bonds -Held for trading		18
	22-Dec-13	Investment in Treasury bill-Held for trading	71
		Investment in U.S Treasury bills	60
		Cash		131
	23-Dec-13	Cash	13
		Loss on sale of Investment in Equity stock-Held for trading	4
		Investment in Equity stock-Held for trading		17
	26.Dec-13	Cash	66
		Investment in U.S Treasury bills		60
		Gain on sale of bills		6
	27-Dec-13	Cash	65
		Loss on sale of investment in treasury Bonds	6
		Investment in Treasury Bonds-Held for trading		71
	28-Dec-13	Cash	0.2
		Dividend Income		0.2
	31-Dec-13	Unrealized Loss on mark to market	7
		Investment in Equity stock-Held for trading		7
		Investment Revenue ($ 5 mill + $ 0.2 mill) 5.2 Gain on sale of investment $5+0.6+6 million] 11.6 Income Summary (balance fig.) 9.2 Loss on sale of investment [$9+6+4 millio] 19 Unrealised gain/loss on investments 7
Ans 2		INCOME STATEMENT:
		Dividend Income+ Revenue	5.2
		Gain on sale of investment	11.6
		Unrealized loss on investment	7
		Relised Loss on investment	19
		BALANCE SHEET:
		Current Assets
		Shorterm Investment	17
		Fair value adjustment	7
		Net investment	10
Ans 3	02-Jan-14	Cash	13.1
		gain on sale		3.1
		Investment in Equity stock-Held for trading		10
	05-Jan-14	Investment in Bonds-Held for trading	40
		Cash		40