Question

The following are in Colt Company’s portfolio of long-term available-for-sale

securities at December 31, 2016.

Total Cost

500 shares of Bonds Corporation common stock             $26,000

700 shares of Penn Corporation common stock              42,000

600 shares of Gibbens Corporation preferred stock        16,800

On December 31, the total cost of the portfolio equaled total fair value. Colt Company had

the following transactions related to the securities during 2017.

Jan. 7: Sold 500 shares of Bonds Corporation common stock at $56 per share.

Jan. 10: Purchased 200 shares, $70 par value common stock of Wellnitz Corporation at $78 per share.

Jan. 26: Received a cash dividend of $1.15 per share on Penn Corporation common stock.

Feb. 2: Received cash dividends of $0.40 per share on Gibbens Corporation preferred stock.

Feb. 10: Sold all 600 shares of Gibbens Corporation preferred stock at $26 per share.

Jul. 1: Received a cash dividend of $1.00 per share on Penn Corporation common stock.

Sep. 1: Purchased an additional 600 shares of the $70 par value common stock of Wellnitz Corporation at $75 per share.

Dec. 15: Received a cash dividend of $1.75 per share on Wellnitz Corporation common stock.

At December 31, 2017, the fair values of the securities were:

Penn Corporation common stock:  $63 per share

          Wellnitz Corporation common stock:  $72 per share

At December 31, 2017, Colt Company’s Total paid-in capital and retained earnings amounted to $10,000

Instructions

(a) Prepare journal entries to record the transactions.

(b) Post to the investment accounts. (Use T accounts.)

(c) Prepare the adjusting entry at December 31, 2015, to report the portfolio at fair value.

(d) Show the balance sheet presentation at December 31, 2017.

Answer 1

	Date	Accounts Title and Explanation	Dr($)	Cr($)
(a)	Jan 7	Cash   (500 x $56)	28,000
		Stock Investments		26,000
		Gain on Sale of Stock Investments		2,000
		(To record sale of Bonds corp stock)
	Jan 10	Stock Investments (200 x $78)	15,600
		Cash		15,600
		(To record investment in wellnitz sstock)
	Jan 26	Cash	805
		Dividend Revenue ($1.15 X 700)		805
		(To record dividend on Penn stock)
	Feb 2	Cash	240
		Dividend Revenue ($0.40 X 600)		240
		(To record dividend on Gibbens stock)
	Feb 10	Cash ($26 X 600)	15,600
		Loss on Sale of Stock Investments	1,200
		Stock Investments		16,800
		(To record sale of gibbens stock)
	Jul 1	Cash	700
		Dividend Revenue ($1 X 700)		700
		(To record dividend on Penn stock)
	Sep 1	Stock Investments	45,000
		Cash ($75 X 600)		45,000
		(To record investment in Wellnitz stock)
	Dec 15	Cash	1,400
		Dividend Revenue ($1.75 X (200+600))		1,400
		(T record dividend on Wellnitz stock)
(b)	Stock Investments
	1/1 Bal.	84,800	1/7	26,000
	1/10	15,600	2/10	16,800
	9/1	45,000
	12/31 Bal.	102,600
(c)	Dec 31	Unrealized Gain or Loss—Equity	900
		Fair Value Adjustment—Available-for-    Sale ($102,600 – $101,700)		900
		Security	Cost	Fair Value
		Penn Corporation common	$42,000	$44,100	(700 X $63)
		Wellnitz Corporation common	60,600	57,600	(800 X $72)
			$102,600	$101,700
(d)		Investments
		Investments in stock of less than 20% owned companies, at fair value	$      101,700
		Stockholders’ equity
		Total paid-in capital and retained earnings	xxxxx
		Less: Unrealized loss on available-for-sale securities	900
		Total stockholders’ equity	$ xxxx