The following information applies to the questions displayed below On August 4,
ID: 2596599 • Letter: T
Question
The following information applies to the questions displayed below On August 4, 2014, Cable Corporation purchased 2,600 shares of Satre Company for $98,800. The following Information applies to the fair value of Satre Company 12/31/2014 12/31/2015 12/31/2016 Per Share $ 50 42 34 Satre Company declares and pays cash dividends of $4 per share on June 1 of each year Required: 1. Prepare journal entries to record the facts in the case, assuming that Cappio considers the shares to be available-for-sale securities. TIP: Net unrealized losses/gains on available-for-sale securities are reported in stockholders' equity. (if no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record the purchase of 2,600 shares of Maxwell Company for $98,800. The company considers the shares to be available-for-sale securities. Note: Enter debits before credits. Date General Journal Debit Credit August 04, 2014 Record entry Clear entry View general journalExplanation / Answer
Journal Entries to record the facts
1
Available for sale securities
$98,800
Cash
$98,800
(to record the purchase of 2600 shares
to be available for sale securities)
2
Available for sale securities
$31,200
Unrealized gain/losses
$31,200
(to record the increase of $12 per share
in the fair market value on 31 dec 2014)
3
Cash
$10,400
Dividend income
$10,400
(to record cash dividend receipt of $4 per share)
4
Available for sale securities
$10,400
Unrealized gain/losses
$10,400
(to record the increase of $4 per share in the fair
market value on 31 dec 2015)
5
Cash
$10,400
Dividend Income
$10,400
(to record cash dividend receipt of $4 per share)
6
Unrealized gain/losses
$10,400
Available for sale securities
$10,400
(to record the decrease of $4 per share in fair
market value on 31 dec 2016)
Working notes:
Value per share = 98800/2600 = $38
Increase/decrease in fair market value
value per share
Value on Aug 4, 2014
Value
adjustment
31/12/2014
50
38
12
31/12/2015
42
38
4
31/12/2016
34
38
-4
Dividend income = 2600*4 = $10400
Journal Entries to record the facts
1
Available for sale securities
$98,800
Cash
$98,800
(to record the purchase of 2600 shares
to be available for sale securities)
2
Available for sale securities
$31,200
Unrealized gain/losses
$31,200
(to record the increase of $12 per share
in the fair market value on 31 dec 2014)
3
Cash
$10,400
Dividend income
$10,400
(to record cash dividend receipt of $4 per share)
4
Available for sale securities
$10,400
Unrealized gain/losses
$10,400
(to record the increase of $4 per share in the fair
market value on 31 dec 2015)
5
Cash
$10,400
Dividend Income
$10,400
(to record cash dividend receipt of $4 per share)
6
Unrealized gain/losses
$10,400
Available for sale securities
$10,400
(to record the decrease of $4 per share in fair
market value on 31 dec 2016)
Working notes:
Value per share = 98800/2600 = $38
Increase/decrease in fair market value
value per share
Value on Aug 4, 2014
Value
adjustment
31/12/2014
50
38
12
31/12/2015
42
38
4
31/12/2016
34
38
-4
Dividend income = 2600*4 = $10400
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