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 $6 million. losses were $13 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 P&G Corporation bonds for $18 million. 13 Purchased 2 million Perry Intercommunications common shares for $26 million. 15 Sold the TAG Corporation bonds for $18.) million. 22 Purchased U.S. Treasury bills for $86 million and Treasury bonds for $84 million 23 Sold half the Terry Intercommunications common shares for $12 million. 26 sold the 0.8. Treasury bills for $93 million. 27 Sold the Treasury bonds for $80 million. 28 Received cash dividends of $200,000 from the Perry Intercommunications common shares. 31 Recorded any necessary adjusting entry(a) and closing entries relating to the investments. The market price of the Terry Intercommunications stock was 912 per share. 2019 Jan. 2 sold the remaining Yerry Intercommunications common shares for $12.4 million. 5 Purchased Warehouse Designs Corporation bonds for $53 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

Solution:
1	Journal Entries for 2018
				$ million
Date	Particulars	Particulars	Debit	Credit
12-Dec	Investment in FF&G Corporation Bonds A/c Dr.		$             18.00
		To Cash A/c		$           18.00
13-Dec	Investment in Ferry Intercommunication common shares A/c Dr.		$             26.00
		To Cash A/c		$           26.00
15-Dec	Cash A/c Dr.		$             18.30
		To Investment in FF&G Corporation Bonds A/c		$           18.00
		To Profit on sale of Investment A/c		$              0.30
22-Dec	US Treasury Bills A/c Dr.		$             86.00
	Treasury Bonds A/c Dr.		$             84.00
		To Cash A/c		$         170.00
23-Dec	Cash A/c Dr.		$             12.00
	Loss on Sale of Investments A/c Dr.		$               1.00
		To Investment in Ferry Intercommunication common shares A/c		$           13.00
26-Dec	Cash A/c Dr.		$             93.00
		To US Treasury Bills A/c		$           86.00
		To Profit on sale of Investment A/c		$              7.00
27-Dec	Cash A/c Dr.		$             80.00
	Loss on Sale of Investments A/c Dr.		$               4.00
		To Treasury Bonds A/c		$           84.00
28-Dec	Cash A/c Dr.		$               0.20
		To Dividend Income A/c		$              0.20
31-Dec	Loss on Revaluation of Investment in Ferry Intercommunication common shares		$               1.00
		To Investment in Ferry Intercommunication common shares A/c		$              1.00
2	Amounts to be reported in 2018 Financials
	Amounnt to be reported in Balance sheet of 2018
	Particulars	$ (in million)
	Investment in Ferry Intercommunication common shares A/c (1 Million Shares)	$                                                                       12.00
	Amounnt to be reported in Income Statement of 2018
	Particulars	$ (in million)
	Other Income:
	Profit on sale of Investments	$                                                                          7.30
	Dividend Income	$                                                                          0.20
	Other Expenses:
	Loss on sale of Investments	$                                                                          5.00
	Loss on Revaluation of Investment	$                                                                          1.00
3	Journal Entries for 2019
				$ million
Date	Particulars	Particulars	Debit	Credit
2-Jan	Cash A/c Dr.		$             12.40
		To Investment in Ferry Intercommunication common shares A/c		$           12.00
		To Profit on Sale of Investments		$              0.40
5-Jan	Investment in Warehouse Designs Corporation bonds A/c Dr.		$             53.00
		To Cash		$           53.00