Problem #4 – Stock and Debt Investments
in In January 2011, the management of Acme Company concludes that it has sufficient
cash to permit some short-term investments in debt and stock securities. During the year, the
following transactions occurred.
Feb. 1 Purchased 600 shares of Hershey common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Praters common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Ralls bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hershey common stock.
Aug. 1 Sold 200 shares of Hershey common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Praters common stock.
Oct. 1 Received the semiannual interest on the Ralls bonds.
Oct. 1 Sold the Ralls bonds for $50,000 less $1,000 brokerage fees.
At December 31, the fair value of the Hershey common stock was $55 per share. The fair value of
the Praters common stock was $24 per share.
(a) Journalize the transactions shown on page 599 and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
(b) Prepare the adjusting entry at December 31, 2011, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2011.
(d) Identify the income statement accounts and give the statement classification of each account.