Question

1. Andrews Specialty, Inc., offers financial services through its investment division. Periodically, Andrews buys and sells securities with the intent of earning profits on short- term differences in price. The following selected transactions relate to Andrews's investment activities during the last quarter of 2018 and the beginning of 2019. The only securities held by Andrews at October 1, 2018 were $2,000,000 of 12% bonds of Pearson Corporation that were purchased on June 2, 2018 at face value. The Pearson Corporation bonds pay interest semiannually on May 31 and November 30. Andrews' fiscal year ends on December 31. 14 2018 October 15 Purchased 300,000 shares of Peters Company preferred stock for $6,000,000 as a speculative investment. Andrews plans to sell the Peters preferred stock under suitable circumstances. Purchased 10% bonds of Patterson, Inc., at their $1,800,000 face value, to be held to maturity until 2021. Semiannual interest is payable on April 30 and October 31. Received semiannual interest of on the Pearson Corporation bonds. Purchased 14% bonds of Philips Company at their $5,000,000 face value, to be held until they mature in 2030. Semiannual interest is payable May 31 and November 30. Sold the Pearson bonds for $1,800,000 because rising interest rates are expected to cause their fair value to continue to fall Purchased U.S. Treasury bonds for $500,000 as trading securities, hoping to earn profits on short-term differences in prices Purchased 300,000 common shares of Perkins Corporation for $3,300,000 as trading securities, hoping to earn profits on short- term differences in prices Sold the treasury bonds for $510,000. Received cash dividends of $100,000 from Peters Company preferred shares. November 4 November 30 December 1 December 1 December 20 December 21 December 23 December 29

Answer 1

Journal Entries:

Date Oct. 15. 2018 Short-Term Investment in Peters C Accounts and Explanations Debit (S) Credit (S) 6,000,000 referred Stock Cash o record the purchase of 300,000 shares of Peters 6,000,000 Preferred stock by cash Nov. 4. 2018 Short-Term Marketable Se -10% Bonds in Patterson, Inc 1,800.000 Cash 1,800.000 o record the purchase of 10% bonds of Patterson. Inc. for cash) Nov. 30. 2018Cash 240,000 Interest Income - Pearson o record the receipt of Semi annual Interest on Pearson C oration (S2,000,000*12/100) 240,000 ration bonds Dec. 1. 2018 Short-Term Marketable Se 14% Bonds in P 5.000,000 Cash o record the purchase of 14% bonds of P 5.000,000 s for cash Dec. 1. 2018 Cash 1,800.000 200,000 Loss on sale of 12% bonds in Pearson oration (S2,000,000 - S1,800,000) Short-Term Marketable Se o record the sale of 12% bonds in Pearson 12% Bonds in Pearson ration 2,000.000 oration with a loss of S200,00) Dec. 20. 2018 Trading Se U.S Trea Bonds 500,000 Cash o record the purchase of U.S Tre 500,000 Bonds for cash as tradin ation (Common Stock Dec. 21. 2018 Short-Term Investment in Perkins 3.300,000 Cash o record the purchase of 300,000 shares of Perkins 3.300,000 ation Common stock by cash)

Dec. 23. 2018 Cash 510,000 Trading Security - U.S Trea Gain on sale of US Treasury Bonds (S510,000 - S500,000) Bonds 500,000 10,000 (To record the sale of US Treasury Bonds for cash with a gain of $10,000 Dec. 29. 2018 Dividend Income - Peters C 100,000 Cash 100,000 (To record the receipt of dividend income on Peters s preferred stock Dec. 31. 2018 Short-Term Investment in Peters referred Stock 1.200.000 Unrealized Gain on Short-Term Investment (300,000 shares * S4 per share) (To record the increase of S4 per share (S24 - S20) in the value of preferred stock at the end the semiter. (S6,000,000/300,000 S20 per share 1.200.000 Dec. 31. 2018 Short-Term Investment in Perkins ation (Common Stock 300,000 Unrealized Gain on Short-Term Investment (300,000 shares * S1 per share) (To record the increase of S1 per share (S12 - S11) in the value of common stock at the end of the semiter. (S3,300,000300,000 S11 per share 300,000 Dec. 31. 2018 Unrealized Loss on Short-Term Marketable Se Short-Term Marketable Se $1,800,000 $1,600,000 200,000 -10% Bonds in Patterson. Inc 200,000 (To record the unrealized loss on 10% bonds in Patterson, Inc. at the end of the semister 14% Bonds in P Dec. 31. 2018 Short-Term Marketable Se 500.000 Unrealized Gain on Short-Term Marketable Se o record the unrealized gain on 14% bonds in $5,500,000 - $5,000,000 500,000 at the end of the semister

Jan. 8. 2019 Cash 3.400,000 200,000 Loss on sale of Common stock in Perkins oration (S3,600,000 - S3,400,000) ation (Common Stock) (S3,300,000 + S300,000) Short-Term Investment in Perkins 3.600,000 o record the loss on sale of common stock of Perkins Corporation) 30. 2019 Cash 160,000 Interest Income Patterson, Inc., ($1,600,000*10/100) o record the receipt of Semi-annual Interest on Patterson Inc.. bonds 160,000 Mav. 31. 2019Cash 770,000 Interest Income - o record the receipt of Semi-annual Interest on $5,500,000 14/100 770,000 bonds Oct. 31. 2019 Cash 160,000 Interest Income Patterson, Inc., ($1,600,000*10/100) o record the receipt of Semi-annual Interest on Patterson Inc.. bonds 160,000 Nov. 30. 2019 Cash 770,000 Interest Income - o record the receipt of Semi-annual Interest on $5,500,000 14/100 770,000 bonds