Chapter 15: Serial Problem: SP 15, Business Solutions Photo URL http://imgur.com
ID: 2474297 • Letter: C
Question
Chapter 15: Serial Problem: SP 15, Business Solutions
Photo URL
http://imgur.com/sffMQL9
Please complete the following:
While reviewing the March 31, 2016, balance sheet of Business Solutions, Santana Rey notes that the business has built a large cash balance of $68,057. Its most recent bank money market statement shows that the funds are earning an annualized return of 0.75%. S. Rey decides to make several investments with the desire to earn a higher return on the idle cash balance. Accordingly, in April 2016, Business Solutions makes the following investments in trading securities:
Apr. 16 Purchases 400 shares of Johnson & Johnson stock at $50 per share plus a $300 commission.
Apr. 30 Purchases 200 shares of Starbucks Corporation at $22 per share plus a $250 commission.
On June 30, 2016, the per share market price (fair value) of the Johnson & Johnson shares is $55 and the Starbucks shares is $19.
Required
Prepare journal entries to record the April purchases of trading securities by Business Solutions.
On June 30, 2016, prepare the adjusting entry to record any necessary fair value adjustment to its portfolio of trading securities.
Chapter 16: Serial Problem: SP 16, Business Solutions
Please complete the following:
Santana Rey, owner of Business Solutions, decades to prepare a statement of cash flows for her business. (Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data.)
Explanation / Answer
Prepare the Journal Entry for purchases of 400 shares of Johnson & Johnson stock
General Voucher
Date
Account title and Explanation
Post.
Ref.
Debit ($)
Credit ($)
April
16
Investment in Short-term Equity Securities
20,300
Cash
20,300
( To purchase of 400 shares of Johnson & Johnson @ 50 per share and paid brokerage of $300 debited to investment in short term equities securities)
Explanation: The shares of Johnson & Johnson with commission amount is $20,300 will be debited to investment in short term equity securities and be credit entry to Cash account
Prepare the Journal Entry for purchases of 200 shares of Starbuck stock
General Voucher
Date
Account title and Explanation
Post.
Ref.
Debit ($)
Credit ($)
April
30
Investment in Short-term Equity Securities
4,650
Cash
4,650
( To purchase of 200 shares of Starbuck@ 22 per share and paid brokerage of $250 debited to investment in short term equities securities)
Explanation: The shares of starbuck with commission amount is $4,650 will be debited to investment in short term equity securities and be credit entry to Cash account
Prepare the Journal Entry for fair value adjustment of purchases of 400 shares of Johnson & Johnson stock
General Voucher
Date
Account title and Explanation
Post.
Ref.
Debit ($)
Credit ($)
june
30
Fair Value Adjustment—Trading Investment
1,700
Unrealized gain on trading securities
1,700
( To being gain on purchase of 400 shares of Johnson & Johnson @ 50 per share and paid brokerage of $300 with current market value of $22,000 , the gain of $1,700 credited to Unrealized gain on trading securities )
Explanation: The gain (400 x 55 = 22,000 – 20,300 ) on shares of Johnson & Johnson amount is $1,700 will be debited to Fair Value Adjustment—Trading Investment and be credit entry to Unrealized gain on trading securities account
Prepare the Journal Entry for fair value adjustment of purchases of 200 shares of Starbuck stock
General Voucher
Date
Account title and Explanation
Post.
Ref.
Debit ($)
Credit ($)
june
30
Unrealized gain on trading securities
850
Fair Value Adjustment—Trading Investment
850
( To being loss on purchase of 200 shares of Johnson & Johnson @ 22 per share and paid brokerage of $250 with current market value of $3,800 , the loss of $850 debited to Unrealized gain on trading securities )
Explanation: The loss (200 x 19 = 3,800 – 4,650 ) on shares of Johnson & Johnson amount is $850 will be debited to Unrealized gain on trading securities account and be credit entry to Fair Value Adjustment—Trading Investment
General Voucher
Date
Account title and Explanation
Post.
Ref.
Debit ($)
Credit ($)
April
16
Investment in Short-term Equity Securities
20,300
Cash
20,300
( To purchase of 400 shares of Johnson & Johnson @ 50 per share and paid brokerage of $300 debited to investment in short term equities securities)
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