On January 2, 2006 Reddenblack, Inc. bought 2,000 shares of Green Corp.\'s conve

Question

On January 2, 2006 Reddenblack, Inc. bought 2,000 shares of Green Corp.'s convertible, $4 par, 5% preferred stock for $140,000, which it expected to hold for at least three-to-five years. On that day, Reddenblack also bought 10,000 shares (a 25% interest) in Blue Co.’s common stock for $820,000, as well as $120,000 of Purple Company’s common stock (12,000 shares, which Reddenblack expects to increase rapidly in value and to provide short-term gains). On January 3, 2006, Reddenblack acquired $100,000 of 6% mortgage bonds of the Orange Corporation at their face value, which it intends to hold until the bonds mature in 2010. These are the only investments that Reddenblack owns. At December 31, 2006, 1. Purple Company reported earnings of $920,000, paid a cash dividend of $2 per share, and had market value of $12 per share; 2. Green Corp. reported earnings of $743,000, paid its preferred dividend to all shareholders, and had a market value of $65 per share. 3. Orange Corporation reported a net loss from operations of $(21,000), paid its annual interest to bondholders, and had a market value 97; and 4. Blue Co. reported earnings of $560,000 for the year, paid a dividend of $3 per share, and had a market value of $86 per share. Prepare the journal entries for Reddenblack at December 31, 2006, relating to its investments

Explanation / Answer

ReddenBlack Inc Investments Investment Category Qty   Amt   Unit Cost Div per share/interest paid Fair Value per share on Dec31.2006. Green Corp Convertible 5% prefernce share,$4 par   Available for sale              2,000      140,000              70 5%       65.00 Blue Co Common stock (25% share) Equity Investment           10,000      820,000              82        3.00       86.00 Purple Co Stock   Trading Investment           12,000      120,000              10        2.00       12.00 Orange Corp Bond at Face value , 6% interest   Held till Maturity        100,000 6% Journal Entries on Dec 31.2006 Account Title Dr $ Cr $ Cash                                   400.0 Dividend Income             400.00 ( recording 5% dividend on $4 par value for 2000 shares) Investment in Green Corporation Pref Shares     10,000.00 Unrealized Holding Gain on Available for sale Investment-OCI                           10,000.0 ( recording unrealized loss through OCI) Investment in Blue Company Stock                        140,000.0 Equity Income from Blue company Stock 140,000.00 ( recording equity income share of 25% of Blue co profits in 2006) Investment in Blue Company Stock     30,000.00 Cash                             30,000.0 ( Recording the receipt of dividend @$3 per share) Cash                             24,000.0 Dividend Income          24,000.0 ( recording dividend income) Investment in Purple Co Stock                           24,000.0 Unrealized Holding Gain on Trading Securities-Income statement        24,000.0 ( recording fair value unrealized gain through p/L) Cash                               6,000.0 Interest Income          6,000.0 ( recording Interest income on Bond)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.