Avalon Corp had the following transactions relating to their trading securities

Question

Avalon Corp had the following transactions relating to their trading securities portfolio. This is the first year that they have made these investments. February 1 - Bought 1,000 shares of IBM for $98 per share and paid brokerage fees of April 1st-Bought $200,000 of 6% U.S. Treasury Bonds at 99, plus accrued interest. $2,000 The nual interest dates are January 1st and July 1st. Avalon uses the revenue approach to record the accrued interest. There were no brokerage fees July 1s- Received the semi-annual interest on the US Treasury Bonds. July 31- IBM announced a 2 for 1 stock split. August 15h. Sold 1,000 shares of the IBM stock for $55 per share and paid brokerage fees of $1,000 December 3 1st- Recorded the accrued interest on the US Treasury bonds. December 3 1s- The market value of the IBM stock is $48, and the US Treasury Bonds are selling for 101.5 Required: Prepare, in good form, all of the journal entries related to these investments.

Explanation / Answer

Date Particulars Dr Cr 01-Feb Investment in trading securities (1000*98) 98,000 Brokerage Fees 2,000 Cash 100,000 01-Apr Investment in trading securities (200000*99/100) 198,000 Interest Revenue (200000*0.06*3/12) 3,000 Cash 201,000 01-Jul Cash 6,000 Interest Revenue (200000*0.06*6/12) 6,000 31-Jul No accounting entry is generally required to record stock split. However, I have added the entry that could be made. It is just for adjusting the number and purchase price of earlier stocks for split. Investment in trading securities (2000*(98/2)) 98,000 Investment in trading securities (1000*98) 98,000 15-Aug Cash 54,000 Brokerage fees 1,000 Profit on sale of trading securities (1000*(55-49)) 6,000 Investment in trading securities (1000*(98/2)) 49,000 31-Dec Interest Receivable 6,000 Interest Revenue (200000*0.06*6/12) 6,000 31-Dec Investment in trading securities (200000*(101.50-99)/100) 5,000 Profit on fair value adjustment of trading securities 5,000 31-Dec Loss on fair value adjustment of trading securities 1,000 Investment in trading securities (1000*(48-49)) 1,000

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