Problem #4 – Stock and Debt Investments
January 2011, the management of Acme Company concludes that it has sufficient
cash to permit some
short-term investments in debt and stock securities. During the year, the
Feb. 1 Purchased 600 shares of Hershey common
stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Praters common
stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Ralls bonds for
$50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April
1 and October 1.
July 1 Received a cash dividend of $0.60 per
share on the Hershey common stock.
Aug. 1 Sold 200 shares of Hershey common stock at
$58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on
the Praters common stock.
Oct. 1 Received the semiannual interest on the
Oct. 1 Sold the Ralls bonds for $50,000 less
$1,000 brokerage fees.
At December 31, the fair
value of the Hershey common stock was $55 per share. The fair value of
the Praters common stock
was $24 per share.
Journalize the transactions shown on page 599 and
post to the accounts Debt Investments and Stock Investments. (Use the T-account
Prepare the adjusting entry at December 31, 2011, to report the
investment securities at fair value. All
securities are considered to be trading securities.
Show the balance sheet presentation of investment securities at
December 31, 2011.
(d) Identify the income statement accounts and
give the statement classification of each account.