Construction Forms Corporation buys securities to be available for sale when cir

Question

Construction Forms Corporation buys securities to be available for sale when circumstances warrant, not to profit from short-term differences in price and not necessarily to hold debt securities to maturity. The following selected transactions relate to investment activities of Construction Forms whose fiscal year ends on December 31. No investments were held by Construction Forms at the beginning of the year.

2016

Mar. 2  

Purchased 1 million Platinum Gauges, Inc., common shares for $40 million, including brokerage fees and commissions.

Apr. 12  

Purchased $17 million of 10% bonds at face value from Zenith Wholesale Corporation.

July 18  

Received cash dividends of $2 million on the investment in Platinum Gauges, Inc., common shares.

Oct. 15  

Received semiannual interest of $1 million on the investment in Zenith bonds.

Oct. 16  

Sold the Zenith bonds for $22 million.

Nov. 1  

Purchased 500,000 LTD International preferred shares for $44 million, including brokerage fees and commissions.

Dec. 31  

Recorded the necessary adjusting entry(s) relating to the investments. The market prices of the investments are $42 per share for Platinum Gauges, Inc., and $80 per share for LTD International preferred shares.

2017

Jan. 23  

Sold half the Platinum Gauges, Inc., shares for $42 per share.

Mar. 1  

Sold the LTD International preferred shares for $82 per share.

Required:

1.

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. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

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2.

Show the amounts that would be reported in the company’s 2016 combined statement of net income and other comprehensive income relative to these investments. (Losses should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Construction Forms Corporation buys securities to be available for sale when circumstances warrant, not to profit from short-term differences in price and not necessarily to hold debt securities to maturity. The following selected transactions relate to investment activities of Construction Forms whose fiscal year ends on December 31. No investments were held by Construction Forms at the beginning of the year.

Explanation / Answer

Note : Profits / (loss) on investments are taken into account only when they are sold in case of a corporation which is not into the business of purchasing / selling of shares / bonds as a regular business.

CONSTRUCTION FORMS CORPORATION 1 Common shares-Platinum Guages Inc 40.0 To Bank a/c 40.0 2 Bonds-Zenith Wholesale Corporation a/c 17.0 To Bank a/c 17.0

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