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Ralley Company Investment in Securities

17 - 2A

In January 2005, the management of Ralley Company concludes that it has sufficient cash to purchase some short term investments in debt and stock securities. During the year the following transactions occured:

Feb 1 Purchaed 600 shares of IBT common stock for $40,000 plus brokeage fees of $800.

Mar 1 Purchased 500 shares of IMA common stock fo r$15,000 plus brokeage fees of $300.

Aoril 1 Purchased 60 $ 1,000, 12% CRE bonds for $60,000, plus $1,200 brokeage fees, Interest is payable semiannually on April 1 and October 1.

July 1 Received a cash dividend of $0.60 per share on the IBT common stock.

Aug 1 Sold 300 shares of IBT common stock at $70 per share, less brokeage fees of $350.

Sept 1 Received a $ 1 per share cash dividend on the IMA common stock.

Oct 1 Received the semiannual interest on the CRE bonds.

Oct 1 Sold the CRE bonds for $65,000, less $1,000 brokerage fees.

At December 31 the fair value of the IBT common stock was $66 per share. The fair value of teh IMA common stock was $30 per share.

(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments ( Use the T-account form)

(b) Prepare the adjusting entry at December 31,2005 to report the investments at fair value. All securities ar considered to be trading securities.

(c) Show the balance sheet presentation of investments securities at December 31,2005.

(d) Identify the income statement accounts and give the statement classification of each account.

Solution Summary

The solution explains the journal entries to be made for sale and purchase of securities for investment. The year end adjusting entries and the balance sheet and income statement presentation.