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. Sara Lee $15, 300 are Kodak, $ 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

1) Journal Entries
Date	Account titles	Debit	Credit
Year 1
Jan.20	Long-Term Investments—AFS (J&J)	20500
	Cash		20500
	Purchased Johnson & Johnson shares
Feb.9	Long-Term Investments—AFS (Sony).	55440
	Cash		55440
	Purchased Sony shares
June.12	Long-Term Investments—AFS (Mattel)	40500
	Cash		40500
	Purchased Mattel shares
Dec.31	Market Adjustment—AFS (LT)	3910
	Unrealized Gain - Equity		3910
	Annual adjustment to market values
		Cost	Fair Value	Difference
	j &j = 1000 x 21.50	20500	21500	1000
	Sony = 1200 x 38	55440	52500	-2940
	Mattel = 1500 x 30.90	40500	46350	5850
	Total	116440	120350	3910
Year 2
Apr.15	Cash	23500
	Gain on Sale of Investments		3000
	Long-Term Investments—AFS (J&J)		20500
	Sold Johnson & Johnson shares
Jul.5	Cash	35850
	Loss on Sale of Investments	4650
	Long-Term Investments—AFS (Mattel)		40500
	Sold Mattel shares
Jul.22	Long-Term Investments—AFS (Sara Lee)	13500
	Cash		13500
	Purchased Sara Lee shares
Aug.19	Long-Term Investments—AFS (Eastman Kodak	15300
	Cash		15300
	Purchased Eastman Kodak shares
Dec. 31	Market Adjustment—AFS (LT)	1175
	Unrealized Gain - Equity		1175
	Annual adjustment to market values
		Cost	Fair value	Profit/loss
	Kodak	15300	17325	2025
	Sara lee	13500	12000	-1500
	Sony	55440	60000	4560
	Total	84240	89325	5085
	Fair Value Adjustment account:
	Required balance	5085	dr.
	Unadjusted balance	3910	dr.
	Required change	1175	dr.
year 3
Feb.27	Long-Term Investments—AFS (Microsoft)	160800
	Cash		160800
	Purchased Microsoft shares
June. 21	Cash	57600
	Gain on Sale of Investments		2160
	Long-Term Investments—AFS (Sony)		55440
	Sold Sony shares
jun. 30	Long-Term Investments—AFS (Black & Decker)	50400
	Cash		50400
	Purchased Black & Decker shares
Aug.3	Cash	9750
	Loss on Sale of Investments	3750
	Long-Term Investments—AFS (Sara Lee)		13500
	Sold Sara Lee shares
Nov.1	Cash	20475
	Gain on Sale of Investments		5175
	Long-Term Investments—AFS (E. Kodak)		15300
	Sold Eastman Kodak shares
Dec.31	Market Adjustment—AFS (LT)	7085
	Unrealized Loss—Equity		5085
	Unrealized Gain—Equity		2000
	Annual adjustment to market values
		Cost	Fair market	difference
	Black & Decker	50400	54600	4200
	Microsoft	160800	158600	-2200
	Total	211200	213200	2000
	Fair Value Adjustment account:
	Required balance .	2000	cr.
	Unadjusted balance	5085	dr.
	Required change	3085	dr.
b)
	12/31 Year 1	12/31 Year 2	12/31 Year 3
Long-Term AFS Securities (cost)	$                                                         116,440.00	$84,240.00	$    211,200.00
Market Adjustment	$                                                             3,910.00	$  5,085.00	$        2,000.00
Long-Term AFS Securities (market	$                                                         120,350.00	$89,325.00	$    213,200.00
c)
	Year 1	year 2	year 3
Realized gains (losses)	0
Sale of Johnson & Johnson shares.		3000
Sale of Mattel shares		-4650
Sale of Sara Lee shares			-3750
Sale of Sony shares			2160
Sale of Eastman Kodak shares			5175
Total realized gain (loss)	0	-1650	3585
Unrealized gains (losses) at year-end	$                                                             3,910.00	$  5,085.00	$        2,000.00