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Equity Investments - Available for Sale - Kings Holdings

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Kings Holdings, Inc. had the following available-for-sale investment portfolio at January 1, 2010.
1,000 shares of Fur Company at $15.00 per share $15,000
900 shares of Roy Company at $20.00 per share $18,000
500 shares of Chase Company at $9.00 per share $4,500
Available-for-sale securities at cost: $37,500
Securities fair value adjustment-Available-for-sale - Credit balance ($7,500)
Available-for-sale securities at fair value: $30,000

During 2010, the following transactions took place:
1. On March 1, Roy Company paid a $2.00 per share dividend.
2. On April 30, Kings Holdings, Inc. sold 300 shares of Chase Company
for $11.00 per share
3. On May 15, Kings Holding, Inc. purchased 100 more shares of Fur Co.
stock at $16.00 per share
4. At December 31, 2010, the stocks had the following price per share values:
Fur Company $17.00
Roy Company $19.00
Chase Company $8.00
During 2011, the following transactions took place:
5. On February 1, Kings Holding, Inc. sold the remaining Chase shares for $8
per share.
6. On March 1, Roy Company paid a $2 per share dividend.
7. On December 21, Fur Company declared a cash dividend of $3 per share to be
paid in the next month.
8. At December 31, 2011, the stocks had the following price per share values:
Fur Company $19
Roy Company $21.00

Instructions:
(a) Prepare journal entries for each of the above transactions.

1 Mar 1, 10 Cash 1,800
Dividend Revenue Amount

2 Apr 30, 10 Cash 3,300
Account Title Amount
Account Title Amount

3 May 15, 10 Account Title Amount
Account Title Amount

4 Dec 31, 10 Securities Fair Value Adjustment Amount

Unrealized Holding Gain or Loss-Equity Amount

Security Cost "Fair
Value" "Unrealized
Gain (Loss)"
Fur Company ($15,000 + $1,600) 16,600
Calculation as desired Formula Formula
Roy Company Formula
Calculation as desired Formula Formula
Chase Company Formula
Calculation as desired Formula Formula
Total of Portfolio Formula Formula Formula
Previous securities fair value adjustment bal.â?"Cr. Amount
Securities fair value adjustmentâ?"Dr. Formula

5 Feb 1, 11 Account Title Amount
Account Title Amount
Account Title Amount

6 Mar 1, 11 Cash Amount
Account Title Amount

7 Dec 21, 11 Dividend Receivable Amount
Account Title Amount

8 Dec 31, 11 Securities Fair Value Adjustment Amount

Account Title Amount

Security Cost "Fair
Value" "Unrealized
Gain (Loss)"
Fur Company 16,600 Formula
Calculation as desired Formula Formula
Roy Company Formula Formula
Calculation as desired Formula Formula
Total of Portfolio Formula Formula Formula
Previous securities fair value adjustment bal.â?"Cr. Amount
Securities fair value adjustmentâ?"Dr. Formula

(b) Prepare a partial balance sheet showing the Investments account at December 31, 2010 and 2011.

Partial Balance Sheet as of: December 31, 2010 December 31, 2011
Current Assets - Dividends Receivable Amount Amount
Investments:
Available-for-sale securities, at fair value Amount Amount
Stockholders' equity:
Accumulated other comprehensive gain Amount Amount

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Solution Summary

The solution computes unrealized gain or loss on Equity Investments - Available for Sale.

$2.19
See Also This Related BrainMass Solution

Equity Securities Entries and Disclosures

Parrot Company has the following securities in its investment portfolio on December 31, 2010 (all securities were purchased in 2010):

3,000 shares of Ames Co. common stock which cost $58,500
10,000 shares of Master Ltd. common stock which cost $580,000
6,000 shares of Kong Company preferred stock which cost $255,000
The Securities Fair Value Adjustment account shows a credit of $10,100 at the end
of 2010.
In 2011, Parrot completed the following securities transactions.
1. On January 15, sold 3,000 shares of Ames's common stock at $22
per share less fees of $2,150
2. On April 17, purchased 1,000 shares of Cast's common stock at $33.50
per share plus fees of $1,980
On December 31, 2011, the market values per share of these securities were:
Master Ltd. $61.00
Kong Co. $40.00
Cast Co. $29.00
In addition, the accounting supervisor of Parrot told you that, even though all these securities have readily determinable fair values, Parrot will not actively trade these securities because the top management intends to hold them for more than one year.

Instructions:
(a) Prepare the entry for the security sale on January 15, 2011.

Gross selling price of 3,000 shares at $23 $66,000
Less: Commissions, taxes, and fees Amount
Text Title Formula
Text Title Amount
Gain on sale of stock Formula

Jan 15, 11 Cash Formula
Account Title Amount
Account Title Amount

(b) Prepare the journal entry to record the security purchase on April 17, 2011.

Total purchase price is:
Number of shares 1,000
Cost per share Amount
Text title Formula
Text title Amount
Text title Formula

Apr 17, 11 Available-for-Sale Securities Amount
Account Title Amount

"(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parrot on
December 31, 2011."

Available-for-Sale Portfolioâ?"December 31, 2011
Securities Cost "Fair
Value" "Unrealized
Gain
(Loss)"
Master Ltd. $580,000 Amount Formula
Kong Co. Amount Amount Formula
Cast Co. Amount Amount Formula
Total of portfolio Formula Formula Formula
Previous securities fair value adjustment balanceâ?"Cr. Amount
Securities fair value adjustmentâ?"Dr. Formula

Dec 31, 11 Securities Fair Value Adjustment (Available-for-Sale) Amount
Account Title Amount

(d) How should the unrealized gains or losses be reported on Parrot's balance sheet?

Enter text answer as appropriate.

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