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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