Question

P16-2A In January 2017, the management of Kinzie Company concludes that it has suffi. Jo cient cash to permit some short-term investments in debt and stock securities. During the tra year, the following transactions occurred. ad! Feb. 1 Purchased 600 shares of Muninger common stock for $32,400. (LO Mar. 1 Purchased 800 shares of Tatman common stock for $20,000 Apr. 1 Purchased 50 $1,000,7% Yoakem bonds for $50,000. Interest is payable semiannually on April 1 and October 1. July | Received a cash dividend of $0.60 per share on the Muninger common stock. Aug. 1 Sold 200 shares of Muninger common stock at $58 per share. Sept. 1 Received a $1 per share cash dividend on the Tatman common stock Oct. 1 Received the semiannual interest on the Yoakem bonds Oct 1 Sold the Yoakem bonds for $49,000. At December 31, the fair value of the Muninger common stock was $55 per share. The fair value of the Tatman common stock was $24 per share Instructions a) Journalize the transactions and post to the accounts Debt Investments and Stock and Investments (Use the T-account form.) Prepare the adjusting entry at December 31, 2017 to report the investment securities al fair value. All securities are considered to be trading securities Show the balance sheet presentation of investment securities at December 31, 2017 (d) Identify the income statement accounts and give the statement classification of each

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solution: Part a: Journal entries date account title Feb-01 stock investments cash debit credit 32400 32400 Part b: Taccounts: stock investments Feb-01 32400 Aug-01 10800 Mar-01 20000 dec 31 bal 41600 1 Mar-01 stock investments 20000 cash 20000 debt investments Feb-01 50000 Aug-01 50000 dec 31 balo Apr-01 debt investments 50000 cash 50000 360 Jul-01 cash dividend revenue 600*0.6 360 11600 Aug-01 cash=200*58 stock investments =(32400/600)*200 Gain on sale of stock investment 10800 800 800 Sep-01 cash dividend revenue 800*1 800 1750 Oct-01 cash Interest revenue 50000*0.07*6/12 1750 Oct-01 cash Loss on sale of debt investment debt investment 49000 1000 50000

credit Part c: adjusting entry date account title debit Dec-31 unrealised gain or loss fair value adjustment - trading securities |(41600-41200) ** **working securities cost muniger 21600 (32400/600) * (600-200) tatman 20000 41600 fair value 22000 55*(600-200) 1920024*800 41200 400 400 balance sheet (Partial) December 31, 2017 current assets short term investments, at fair value 41200 Part d: Income Statement Account Dividend Revenue Gain on Sale of Stock Investments Interest Revenue Loss on Sale of Debt Investments Unrealized Loss-Income category Other revenues and gains Other revenues and gains Other revenues and gains Other expenses and losses Other expenses and losses

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