Question

Walcott, Inc., a calendar year firm, purchased two security investments during 2017.
l 4/20/2017, Walcott acquired 6,400 shares of Johnson, Inc. At $21 per share plus brokerage fees of $275. l 6/30/2017, Walcott acquired 6% bonds from Barnes, Inc. For $184,557.

Walcott’s intent for both investments was to hold the securities to make short term gains; neither investment resulted in significant influence over the investee. Both firms’ shares were actively traded on a national stock exchange, and Walcott uses the fair value method of accounting. Stock prices of Johnson, and the amortized cost and fair values of the Barnes bonds were as follows at year end 2017 and 2018:

	12/31/2017	12/31/2018
Johnson C/S Price Per Share	$23	$19
Barnes 6% Bonds Amortized Cost	$185,785	$187,075
Fair Value of Barnes 6% Bonds	$187,410

a) How should these securities be classified? Why?

b) Present required entries at acquisition and at year end 2017. The interest income entry for the bonds is not required.

Acquisition entry:

	Accounts	Debits	Credits
b.

Year end entry:

b.	Accounts	Debits	Credits

c) If the investment in Barnes bonds is sold early in 2018 when the amortized cost is $185,900, and the market price is $187,410, what entry is made for the sale?

	Accounts	Debits	Credits
c.

d) What entry is made at year end 2018 for the Johnson shares, when the portfolio is “marked to market” (fair value method)?

	Accounts	Debits	Credits
d.

Answer 1

A) These Securites are classified as Current Assets as the asset are held for the pupose of the trading and classified as short term investements.

B) Acquition Enteries

Date	Particulars	Amt $(Dr.)	Amt $(Cr.)
20-04-2017	Short Term Investments A/c dr	1,34,675.00
	To bank A/c		1,34,675.00
	( being Share puchased @ $21 plus $275 brokerage Charges)
30-06-2017	Short Term Investments A/c dr	1,84,557.00
	To bank A/c		1,84,557.00
	( being bonds Purchased)

B) Year End Enteries

31-12-2017	Trading Securities Market Value adjustement	15,378.00
	To unrealized Gain		15,378.00
	( being securities valued at market value)
	Bonds (187410-184557)=2853
	Shares (6400*23)=147200-134675=12525

C)

Unrealized Gain	2,853.00
To gain on Sale of Investement		2,853.00
(Since the bonds are already valued at Fair market value hence the unrealzed gain for bonds in now be convered inti realized and needs to be reported in Income statement

Unrealized Gain	12,525.00
Unrealized Loss	13,075.00
To trading Securities Market Value adjustement		25,600.00
Shares (6400*19)=121600 as on 31/12/2018
Shares as on 31/12/2017= 147200 balance to be booked in unrealized losses