On 1/1/14 Jay Company made 2 investments in equity securities of other companies
ID: 2493028 • Letter: O
Question
On 1/1/14 Jay Company made 2 investments in equity securities of other companies as described below:
Purchased 1000 of the 100,000 shares of ABC Stock at $25 per share.
At this time the fair market value of assets equaled book value except for a building with a fair market value of $1,000,000 and a book value of $700,000.
The building has 10 years of remaining life
Purchased 400 of the 1000 shares of DEF Stock at $100 per share.
At this time the fair market value of assets equaled book value except for a truck with a fair market value of $40,000 and a book value of $22,000.
The truck has 5 years of remaining life.
The following events happened in 2014, 2015 and 2016
2014:
ABC paid $1 per share dividend, reported income of $500,000 and its stock was selling for $26 per share on 12/31/2014
DEF paid $2 per share dividend, reported income of $75,000 and its stock was selling for $95 on 12/31/2014
2015:
ABC paid $2 per share dividend, reported a loss of $200,000 and its stock was selling for $22 per share on 12/31/2015
DEF paid $1 per share dividend, reported a loss of $44,000 and its stock was selling for $101 on 12/31/2015
On 1/4/2016 Jay Company sold ABC Stock at $27 per share. On 1/5/2016 Jay Company sold DEF stock at $98 per share.
REQUIRED: PREPARE ALL NECESSARY JOURNAL ENTRIES FOR JAY COMPANY IN 2014, 2015 AND 2016.
Explanation / Answer
Trading securities method of accounting
Purchase of ABC Stock Investment in ABC Stock 1000*25 25000 Cash 25000 Appreciation of asset value Calculation of Unrealised gain/Loss Fair market value 1000000 Book value 700000 Appreciation gain for 100000 shares 300000 For 1000 shares held 3000 Investment in ABC Stock 3000 Unrealised gain-ABC Stock(Income statement) 3000 Dividend received(2014) Cash($1* 1000) 1000 Dividend revenue 1000 Appreciation in stock value @ 2014 end Investment in ABC Stock(1*1000) 1000 Unrealised gain-ABC Stock(Income statement) 1000 Dividend received(2015) Cash($2* 1000) 2000 Dividend revenue 2000 Decrease in value ofstock @ 2015 end Unrealised loss-ABC Stock(Income statement) 4000 Investment in ABC Stock(4*1000) 4000 Sale of ABC Stock Cash (27*1000) 27000 Investment in ABC Stock(4*1000)Dec.in FMV 4000 Investment in ABC Stock 1000*25 25000 Investment in ABC Stock(Asset appn.) 3000 Investment in ABC Stock(1*1000)Inc.in FMV 1000 Gain on sale of ABC Stock(Bal.figure) 2000Related Questions
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