Pr. 17-116—Available-for-sale equity securities.

During the course of your examination of the financial statements of Simpson Corporation for the year ended December 31, 2007, you found a new account, “Investments.”  Your examination revealed that during 2007, Simpson began a program of investments, and all investment-related transactions were entered in this account.  Your analysis of this account for 2007 follows:

Simpson Corporation

Analysis of Investments

For the Year Ended December 31, 2007

Date—2007    Debit

(a)

Pinson Company Common Stock

Feb. 14 Purchased 4,000 shares @ $55 per share. $220,000

July 26 Received 400 shares of Pinson Company common stock   as a stock dividend. (Memorandum entry in general ledger.) Sept. 28 Sold the 400 shares of Pinson Company common stock

Credit

received July 26 @ $70 per share.

(b)

$28,000

Debit

Watts Inc., Common Stock

Apr. 30 Purchased 20,000 shares @ $40 per share. $800,000

Credit

Oct. 28 Received dividend of $1.20 per share.

Additional information:

1. The fair value for each security as of the 2007 date of each transaction follow:

$24,000

Security Feb. 14 Apr. 30 July 26 Sept. 28

Dec. 31

Pinson Co. $55 $62 $70

$74

Watts Inc. $40

32

Simpson Corp. 25 28 30 33

35

 

2.All of the investments of Simpson are nominal in respect to percentage of ownership (5% or less).

3.Each investment is considered by Simpson’s management to be available-for-sale.

Instructions

(1)Prepare any necessary correcting journal entries related to investments (a) and (b).

(2)Prepare the entry, if necessary, to record the proper valuation of the available-for-sale equity security portfolio as of December 31, 2007.

 

 

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