Question

During the first year of operations, Makala Company purchased two available-for-sale investments as follows: Security Shares Purchased Cost Oceanna Company 700 $29,000 Rockledge, Inc. 1,900 41,000 Assume that as of December 31, Oceanna Company’s stock had a market value of $49 per share and Rockledge, Inc.’s stock had a market value of $20 per share. Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, Makala had a net income of $105,000. No dividends were paid. Required: (a) Prepare the Current assets section of the balance sheet for the available-for sale securities as of December 31.* (b) Prepare the Stockholders’ equity section of the balance sheet as of December 31.* * Refer to the information given and list of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. “Plus” or “Less” will automatically appear if it is required.

During the first year of operations, Makala Company purchased two available-for-sale investments as follows:

Security	Shares Purchased	Cost
Oceanna Company	700	$29,000
Rockledge, Inc.	1,900	41,000

Assume that as of December 31, Oceanna Company’s stock had a market value of $49 per share and Rockledge, Inc.’s stock had a market value of $20 per share. Makala had 10,000 shares of no par stock outstanding that was issued for $150,000. For the year ending December 31, Makala had a net income of $105,000. No dividends were paid.

Required:

(a)

Prepare the Current assets section of the balance sheet for the available-for sale securities as of December 31.*

(b)

Prepare the Stockholders’ equity section of the balance sheet as of December 31.*

* Refer to the information given and list of Accounts and Amount Descriptions provided for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. “Plus” or “Less” will automatically appear if it is required.

Answer 1

(a)

Market value:
Oceana [700 x 49]	34,300
Rockledge [1,900 x 20]	38,000
	72,300
Less: Cost [29,000 + 41,000]	(70,000)
Unrealized Gain	2,300

Extract of Balance Sheet:

Assets:
Current assets
Available for sale investments, at cost	70,000
Add: Valuation allowance	2,300
		72,300

(b) Stockholders' Equity

Common stock, 10,000 shares	150,000
Retained earnings	105,000
Unrealized gain on available for sale securities	2,300
Total	257,300