American Surety and Fidelity buys and sells securities expecting to earn profits
ID: 2446085 • Letter: A
Question
American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2013, gains from selling trading securities totaled $5 million, losses were $12 million, and the company had earned $5 million in investment revenue. The following selected transactions relate to American’s trading account during December 2013, and the first week of 2014. The company’s fiscal year ends on December 31. No trading securities were held by American on December 1, 2013. 2013 Dec. 12 Purchased FF&G Corporation bonds for $22 million. 13 Purchased 2 million Ferry Intercommunications common shares for $28 million. 15 Sold the FF&G Corporation bonds for $22.1 million. 22 Purchased U.S. Treasury bills for $68 million and Treasury bonds for $75 million. 23 Sold half the Ferry Intercommunications common shares for $10 million. 26 Sold the U.S. Treasury bills for $72 million. 27 Sold the Treasury bonds for $73 million. 28 Received cash dividends of $200,000 from the Ferry Intercommunications common shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Ferry Intercommunications stock was $10 per share. 2014 Jan. 2 Sold the remaining Ferry Intercommunications common shares for $10.5 million. 5 Purchased Warehouse Designs Corporation bonds for $44 million.
Required: 1. Prepare the appropriate journal entry for each transaction or event during 2013, including the closing entry to income summary for the year. (If no entry is required for a particular event, 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).)
Indicate any amounts that American would report in its 2013 balance sheet and income statement as a result of these investments. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Prepare the appropriate journal entry for each transaction or event during 2014.(If no entry is required for a particular event, 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).)
2.Indicate any amounts that American would report in its 2013 balance sheet and income statement as a result of these investments. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
3.Prepare the appropriate journal entry for each transaction or event during 2014.(If no entry is required for a particular event, 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).)
Explanation / Answer
Ans
Ans 1 Date Acount Head and Details Debit Credit 12-Dec-13 Investment in Bonds -Held for trading 22 Cash 22 13-Dec-13 Investment in Equity stock-Held for trading 28 Cash 28 15-Dec-13 Cash 22.1 Gain on sale of investment in Bonds 0.1 Investment in Bonds -Held for trading 22 22-Dec-13 Investment in Treasury bill-Held for trading 68 Cash 68 23-Dec-13 Cash 10 Loss on sale of Investment in Equity stock-Held for trading 4 Investment in Equity stock-Held for trading 14 22-Dec-13 Investment in Treasury Bonds-Held for trading 75 Cash 75 27-Dec-13 Cash 73 Loss on sale of investment in treasury Bonds 2 Investment in Treasury Bonds-Held for trading 75 28-Dec-13 Cash 0.2 Dividend Income 0.2 31-Dec-13 Unrealized Loss on mark to market 9 Investment in Equity stock-Held for trading 9 Ans 2 Income Statement Dividend Income 2 Unrealized loss on investment 9 Relised Loss on investment 5.9 Net Loss 16.9 Balance Sheet Current Assets Shorterm Investment 73 Ans 3 02-Jan-14 Cash 10.5 Investment in Equity stock-Held for trading 5 Gain on sale of investment inequity stock 15.5 05-Jan-14 Investment in Bonds-Held for trading 44 Cash 44Related Questions
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