Question

Required information Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities LO P3 (The following information applies to the questions displayed below.) 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.

Answer 1

Year-1
Date	General Journal	Debit	Credit
Jan.20	Debt investment-AFS	$     20,500
	Cash		$      20,500
Feb.09	Debt investment-AFS	55,440
	Cash		55,440
June.12	Debt investment-AFS	40,500
	Cash		40,500
Dec.31	Fair value adjustment-AFS	3,910
	Unrealized gain-equity		3,910
Year-2
Apr.15	Cash	23,500
	Gain on sale of debt investment		3,000
	Debt investment-AFS		20,500
July.05	Cash	35,850
	Loss on sale of debt investment	4,650
	Debt investment-AFS		40,500
July.22	Debt investment-AFS	13,500
	Cash		13,500
Aug.19	Debt investment-AFS	15,300
	Cash		15,300
Dec.31	Fair value adjustment-AFS	1,175
	Unrealized gain-equity		1,175
Year-3
Feb.27	Debt investment-AFS	160,800
	Cash		160,800
Jun.21	Cash	57,600
	Gain on sale of debt investment		2,160
	Debt investment-AFS		55,440
Jun.30	Debt investment-AFS	50,400
	Cash		50,400
Aug.03	Cash	9,750
	Loss on sale of debt investment	3,750
	Debt investment-AFS		13,500
Nov.01	Cash	20,475
	Gain on sale of debt investment		5,175
	Debt investment-AFS		15,300
Dec.31	Unrealized gain-equity	6,025
	Fair value adjustment-AFS		6,025

WN-1:
	Sony	Sara	Kodak	Total
Unrealized gain(loss)	7,500	(1,500)	2,025	8,025
Less: Reversal of Unrealized gain(loss):
Johnson & Johnson				(1,000)
Mattel				(5,850)
Net unrealized gain(loss)				1,175
WN-2:
	Microsoft	B & D	Total
Unrealized gain(loss)	(2,200)	4,200	2,000
Less: Reversal of Unrealized gain(loss):
Sony			(7,500)
Sara			1,500
Kodak			(2,025)
Net unrealized gain(loss)			(6,025)