Amalgamated General Corporation is a consulting firm that also offers financial

ID: 2379591 • Letter: A

Question

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2013 and the first month of 2014. The only securities held by Amalgamated at October 1 were $60 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

Purchased 2 million preferred shares of Millwork Ventures Company for $64 million as a speculative investment to be sold under suitable circumstances.

Purchased 10% bonds of Holistic Entertainment Enterprises at their $42 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.

Sold the Kansas Abstractors bonds for $52 million because rising interest rates are expected to cause their fair value to continue to fall.

Purchased 12% bonds of Household Plastics Corporation at their $90 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30.

Purchased U. S. Treasury bonds for $6.2 million as trading securities, hoping to earn profits on short-term differences in prices.

Purchased 4 million common shares of NXS Corporation for $56 million as trading securities, hoping to earn profits on short-term differences in prices.

Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $30.50 per share and $15.00 per share for the NXS Corporation common. The fair values of the bond investments were $61.7 million for Household Plastics Corporation and $17.3 million for Holistic Entertainment Enterprises.

Prepare the appropriate journal entry for each transaction or event. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5))

Question required for answer

Dec 31 2013

Assuming no other transactions involving trading securities, record the fair value adjustment.

Explanation / Answer

Here are my jounrnal entries:

2011
10/18 Investment in Milwork Ventures preferred shares Dr. 51
Cash Cr 51

10/31 Cash Dr. 1.2
Investment Revenue Cr 1.2

11/1 Investment in Holistic Entertainment bonds Dr. 18
Cash 18

11/1 Cash Dr. 23
Loss on sale of investment Dr 2
Investment in Kansas Abst. Bonds Cr 25

12/1 Investment in Household Plastics bonds Dr 60
Cash Cr. 60
12/20 Investment in US Tres. Bonds Dr. 5.6
Cash 5.6

12/21 Investment in NXS common shares Dr. 36
Cash 36
12/23 Cash Dr. 5.7
Gain on sale of investments .1
Investments in US tres bonds 5.6
12/29 Cash Dr 3
Investment Revenue 3

Accrued Interest
12/31/2011 Investment revenue receivable-Household Plastics Dr 0.6
Investment revenue receivable-Holistic Entertainment 0.3
Investment revenue 0.9

Revaluations
12/31/2011 Net unrealized holding gains and losses (OCI) DR. 2.6
Fair Value Adjustment 2.6
Fair Value adjustment 0.7
Net unrealized holding gains and losses (I/S) 0.7

Closing entry:
12/31/2011 is posted below.

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