Question

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Mead Inc. began operations in Year 1, following is a series of transactions and events involving its long-term debt investments in available-for-sale securities.

Year 1

Jan.		20		Purchased Johnson & Johnson bonds for $20,500.
Feb.		9		Purchased notes of Sony for $55,440.
June		12		Purchased bonds of Mattel for $40,500.
Dec.		31		Fair values for debt in the portfolio are Johnson & Johnson, $21,500; Sony, $52,500; and Mattel, $46,350.

Year 2

Apr.		15		Sold all of the bonds of Johnson & Johnson for $23,500.
July		5		Sold all of the bonds of Mattel for $35,850.
July		22		Purchased notes of Sara Lee for $13,500.
Aug.		19		Purchased bonds of Kodak for $15,300.
Dec.		31		Fair values for debt in the portfolio are Kodak, $17,325; Sara Lee, $12,000; and Sony, $60,000.

Year 3

Feb.		27		Purchased bonds of Microsoft for $160,800.
June		21		Sold all of the notes of Sony for $57,600.
June		30		Purchased bonds of Black & Decker for $50,400.
Aug.		3		Sold all of the notes of Sara Lee for $9,750.
Nov.		1		Sold all of the bonds of Kodak for $20,475.
Dec.		31		Fair values for debt in the portfolio are Black & Decker, $54,600, and Microsoft, $158,600.

Required:
1. Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.

• 1

  Purchased Johnson & Johnson bonds for $20,500.

• 2

  Purchased notes of Sony for $55,440.

• 3

  Purchased bonds of Mattel for $40,500.

• 4

  Fair values for debt in the portfolio are Johnson & Johnson, $21,500; Sony, $52,500; and Mattel, $46,350.

• 1

  Sold all of the bonds of Johnson & Johnson for $23,500.

• 2

  Sold all of the bonds of Mattel for $35,850.

• 3

  Purchased notes of Sara Lee for $13,500.

• 4

  Purchased bonds of Kodak for $15,300.

• 5

  Fair values for debt in the portfolio are Kodak, $17,325; Sara Lee, $12,000; and Sony, $60,000.

• Purchased bonds of Microsoft for $160,800.

• 2

  Sold all of the notes of Sony for $57,600.

• 3

  Purchased bonds of Black & Decker for $50,400.

• 4

  Sold all of the notes of Sara Lee for $9,750.

• 5

  Sold all of the bonds of Kodak for $20,475.

• 6

  Fair values for debt in the portfolio are Black & Decker, $54,600; and Microsoft, $158,600.

Answer 1

Date	General journal	Debit	Credit
Jan 20, Year 1	Long ­term investments—AFS (J&J)	20500
	Cash		20500
Feb 09, Year 1	Long­ term investments—AFS (Sony)	55440
	Cash		55440
Jun 12, Year 1	Long­ term investments—AFS (Mattel)	40500
	Cash		40500
Dec 31, Year 1	Fair value adjustment—AFS (LT)	3810
	Unrealized Gain—Equity (20500+55540+40500)-(21500+52500+46350)		3810
Apr 15, Year 2	Cash	23500
	Gain on sale of investments		3000
	Long ­term investments—AFS (J&J)		20500
Jul 05, Year 2	Cash	35850
	Loss on sale of investments	4650
	Long ­term investments—AFS (Mattel)		40500
Jul 22, Year 2	Long ­term investments—AFS (Sara Lee)	13500
	Cash		13500
Aug 19, Year 2	Long ­term investments—AFS (Eastman Kodak)	15300
	Cash		15300
Dec 31, Year 2	Fair value adjustment—AFS (LT)	5085
	Unrealized gain—Equity (55440+13500+15300)-(60000+17325+12000)		5085
Feb 27, Year 3	Long­ term investments—AFS (Microsoft)	160800
	Cash		160800
Jun 21, Year 3	Cash	57600
	Gain on sale of investments		2160
	Long­ term investments—AFS (Sony)		55440
Jun 30, Year 3	Long­ term investments—AFS (Black & Decker)	50400
	Cash		50400
Aug 03, Year 3	Cash	9750
	Loss on sale of investments	3750
	Long­ term investments—AFS (Sara Lee)		13500
Nov 01, Year 3	Cash	20475
	Gain on sale of investments		5175
	Long ­term investments—AFS (Eastman Kodak)		15300
Dec 31, Year 3	Fair value adjustment—AFS (LT)	10895
	Unrealized gain—Equity (54600+158600)-(160800+50400)+3810+5085		10895