Amalgamated General Corporation is a consulting firm that also offers financial

Question

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $45 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31.

Required:
Prepare the appropriate journal entry for each transaction or event. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

2018 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $72 million. 31 Received semiannual interest of $2.7 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $66 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $41 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $70 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U. S. Treasury bonds for $6.6 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $64 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale. 23 Sold the Treasury bonds for $6.9 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $34.50 per share and $17.50 per share for the NXS Corporation common. The fair values of the bond investments were $63.7 million for Household Plastics Corporation and $17.7 million for Holistic Entertainment Enterprises.

Explanation / Answer

Calculations:

Net unrealized holding gains and losses - OCI = 72 - (34.5*2) = 3

Net unrealized holding gains and losses - I/S = (4*17.5) - 64 = 6

Assuming no other transactions involving trading securities, the 2019 adjusting entry to remove the fair value adjustment associated with the sold securities would be:

(all amounts in $ millions) Date Particulars Debit Credit 18-Oct-18 Investment in Millwork Ventures preferred shares 72.00 Cash 72.00 31-Oct-18 Cash 2.70 Investment revenue 2.70 1-Nov-18 Investment in Holistic Entertainment Bonds 66.00 Cash 66.00 1-Nov-18 Cash 41.00 Loss on sale of investment 4.00 Investment in Kansas Abstractors bonds 45.00 1-Dec-18 Investment in Household Plastic bonds 70.00 Cash 70.00 20-Dec-18 Investment in U.S. Treasury bonds 6.60 Cash 6.60 21-Dec-18 Investment in NXS common shares 64.00 Cash 64.00 23-Dec-18 Cash 6.90 Investment in U.S. Treasury bonds 6.60 Gain on sale of investments 0.30 29-Dec-18 Cash 3.00 Investment revenue 3.00 31-Dec-18 Accrued interest: Investment revenue receivable - Holistic Entertainment 1.10 Investment revenue receivable - Household Plastics 0.70 Investment revenue 1.80 Revaluations: 31-Dec-18 Net unrealized holding gains and losses - OCI 3.00 Fair value adjustment 3.00 (for millwork ventures) 31-Dec-18 Fair value adjustment 6.00 Net unrealized holding gains and losses - I/S 6.00 (for NXS) Closing entry: Net unrealized holding gains and losses - I/S 6.00 Investment revenue 7.50 Gain on sale of investments (U.S. treasury bonds) 0.30 Loss on sale of investments (Kansas Abstractors) 4.00 Income summary (to balance) 9.80 7-Jan-19 Cash 60.00 Loss on sale of investments (to balance) 4.00 Investment in NXS common shares (account balance) 64.00

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