Question

American Surety and Fidelity buys and sells securities expecting to earn profits on price. For the first 11 months of 2021, gains from selling trading securities totaled $8 mill line trading securities were SIT million, and the company had earned $5 million in inta following selected transactions relate to American's investments in trading securities ar during December 2021, and the first week of 2022. The company's fiscal year ends on De securities or equity investments were held by American on December 1, 2021. profits on short-term differences S8 million, losses from llion in interest revenue. The ing securities and equity securities vear ends on December 31. Not 2021 Dec. 12 13 Purchased FF&G Corporation bonds for $12 million. Purchased 2 million shares of Ferry Intercommunications common stock for $22 million American does not have significant influence over Ferry's operations or policies. Sold the FF&G Corporation bonds for $12.1 million. Purchased U.S. Treasury bills for $56 million and Treasury bonds for $65 million. Sold half the shares of Ferry Intercommunications common stock for $10 million. Sold the U.S. Treasury bills for $57 million. Sold the Treasury bonds for $63 million. Received cash dividends of $200,000 from the Ferry Intercommunications common stock shares. Recorded any necessary adjusting entry relating to the remaining investment. The marker price of the Ferry Intercommunications stock was $10 per share. 2022 Jan. 2 Sold the remaining Ferry Intercommunications common stock shares for $10.2 Purchased Warehouse Designs Corporation bonds for $34 million. Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021 mei adjusting entries. 2. Indicate any amounts that American would report in its 2021 balance sheet and of these investments. 3. Prepare the appropriate journal entry for each transaction or event during 20. wuring 2021 including any year-end nce sheet and income statement as a

Answer 1

Part 1)

The journal entry for each transaction during 2021 including any year-end adjusting entries is prepared as below:

No.	Date	General Journal	Debit	Credit
1	Dec. 12, 2021	Investment in FF&G Corporation Bonds	$12.0
		Cash		$12.0
2	Dec. 13, 2021	Investment in Ferry Shares	$22.0
		Cash		$22.0
3	Dec. 15, 2021	Fair Value Adjustment	$0.1
		Unrealized Holding Gain-NI		$0.1
4	Dec. 15, 2021	Cash	$12.1
		Fair Value Adjustment (12.1-12)		$0.1
		Investment in FF&G Corporation Bonds		$12.0
5	Dec. 22, 2021	Investment in U.S. Treasury Bills	$56.0
		Investment in U.S. Treasury Bonds	$65.0
		Cash		$121.0
6	Dec. 23, 2021	Unrealized Holding Loss-NI	$1.0
		Fair Value Adjustment		$1.0
7	Dec. 23, 2021	Cash	$10.0
		Fair Value Adjustment	$1.0
		Investment in Ferry Shares		$11.0
8	Dec. 26, 2021	Fair Value Adjustment	$1.0
		Unrealized Holding Gain-NI (57-56)		$1.0
9	Dec. 26, 2021	Cash	$57.0
		Fair Value Adjustment		$1.0
		Investment in U.S. Treasury Bills		$56.0
10	Dec. 27, 2021	Unrealized Holding Loss-NI (65-63)	$2.0
		Fair Value Adjustment		$2.0
11	Dec. 27, 2021	Cash	$63.0
		Fair Value Adjustment	$2.0
		Investment in U.S. Treasury Bonds		$65.0
12	Dec. 28, 2021	Cash	$0.2
		Dividend Revenue		$0.2
13	Dec. 31, 2021	Unrealized Holding Loss-NI	$1.0
		Fair Value Adjustment		$1.0

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Part 2)

The amount that would be reported in 2021 balance sheet and income statement is given as below:

	($ in millions)
Balance Sheet (Short Term Investment):
Investment in Ferry Shares (22*50%)	11.0
Less: Fair Value Adjustment	1.0
Total	10.0
Income Statement:
Investment Revenue (5+.2)	5.2
Gain on Sale of Investments (8+.1+1)	9.1
Loss on Sale of Investments (11+1+2)	-14.0
Net Unrealized Holding Gains and Losses on Investments Held	-1

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Part 3)

The journal entries are given as follows:

No.	Date	General Journal	Debit	Credit
1	Jan. 2, 2022	Fair Value Adjustment	$0.2
		Unrealized Holding Gain-NI		$0.2
2	Jan. 2, 2022	Cash	$10.20
		Fair Value Adjustment	$0.80
		Investment in Ferry Shares		$11.00
3	Jan. 5, 2022	Investment in Warehouse Design Bonds	$34.0
		Cash		$34.0