Prepare journal entries to record the following transactions involving both the
ID: 2373420 • Letter: P
Question
Prepare journal entries to record the following transactions involving both the short-term and long-term investments of Sophia Corp., all of which occurred during calendar year 2011. Use the account Short-Term Investments for any transactions that you determine are short term.
a.
On February 15, paid $150,000 cash to purchase American General's 120-day short-term notes at par, which are dated February 15 and pay 10% interest (classified as held-to-maturity).
b.
On March 22, bought 700 shares of Frain Industries common stock at $25 cash per share plus a $250 brokerage fee (classified as long-term available-for-sale securities).
c.
On May 15, received a check from American General in payment of the principal and 120 days' interest on the notes purchased in transaction a.
d.
On July 30, paid $50,000 cash to purchase MP3 Electronics' 8% notes at par, dated July 30, 2011, and maturing on January 30, 2012 (classified as trading securities).
e.
On September 1, received a $0.50 per share cash dividend on the Frain Industries common stock purchased in transaction b.
f.
On October 8, sold 350 shares of Frain Industries common stock for $32 cash per share, less a $175 brokerage fee.
g.
On October 30, received a check from MP3 Electronics for three months' interest on the notes purchased in transaction d.
Explanation / Answer
a.On February 15, paid $150,000 cash to purchase American General's 120-day short-term notes at par, which are dated February 15 and pay 10% interest (classified as held-to-maturity).
Feb 15 Short-Term Investments Dr 150000
CAsh Cr 150000
b.On March 22, bought 700 shares of Frain Industries common stock at $25 cash per share plus a $250 brokerage fee (classified as long-term available-for-sale securities).
Mar 22 Long Term Inv Dr 17750
Cash Cr 17750
(700*25+250 = 17750)
c.On May 15, received a check from American General in payment of the principal and 120 days' interest on the notes purchased in transaction a.
May 15 Cash Dr 155,000
Short term Inv Cr 150,000
Interest Earned Cr 5000
(Int=150000*10%*(120/360)= 5000)
d.On July 30, paid $50,000 cash to purchase MP3 Electronics' 8% notes at par, dated July 30, 2011, and maturing on January 30, 2012 (classified as trading securities).
Jul 30 Short Term Inv Dr 50000
Cash Cr 50000
e.On September 1, received a $0.50 per share cash dividend on the Frain Industries common stock purchased in transaction b.
Sep 1 Cash Dr 350
Dividends Earned Cr 350
(Div 700*0.50 = 350)
f.On October 8, sold 350 shares of Frain Industries common stock for $32 cash per share, less a $175 brokerage fee.
Oct8 Cash Dr 11025
Long Term Inv Cr 11025
Profit on Sale of Long Term Inv Cr 2149
(Sale 350*32-175 = 11025. AVge SP = 11025/350=$31.50
Avge cost of acquition 17750/700 = $25.36
SO Profit on Sale= 350*(31.50-25.36)= $2,149)
g.On October 30, received a check from MP3 Electronics for three months' interest on the notes purchased in transaction d.
Oct30 Bank ac Dr 1000
Interest Earned Cr 1000
(Int=50000*8%*(3/12)= 1000)