Parnell Industries buys securities to be available for sale when circumstances w
ID: 2385794 • Letter: P
Question
Parnell Industries buys securities to be available for sale when circumstances warrant, not to profit from short-term differences in price and not necessarily to hold debt securities to maturity. The following selected transactions relate to investment activities of Parnell Industries whose fiscal year ends on December 31. No investments were held by Parnell at the beginning of the year.2009
March 1 Purchased 2 million Platinum Gems, Inc. common shares for $124 million, including brokerage fees and commissions.
April 13 Purchased $200 million of 10% bonds at face value from Oracle Wholesale Corporation.
July 20 Received cash dividends of $3 million on the investment in Platinum Gems, Inc. common shares.
October 13 Received semiannual interest of $10 million on the investment in Oracle bonds.
October 14 Sold the Oracle bonds for $205 million.
November 1 Purchased 500,000 SPI International preferred shares for $40 million, including brokerage fees and commissions.
December 31 Recorded the necessary adjusting entry(s) relating to the investments. The market prices of the investments are $64 per share for Platinum Gems, Inc. and $74 per share for SPI International preferred shares.
2010
January 25 Sold half the Platinum Gems, Inc. shares for $65 per share.
March 1 Sold the SPI International preferred shares for $78 per share.
December 31 Recorded the necessary adjusting entry(s) relating to the investments. The market price of the investments are $65 per share for Platinum Gems, Inc.
Required:
1. Prepare the appropriate journal entry for each transaction or event.
2. Show the amounts that would be reported on the company’s 2009 income statement relative to these investments.
Explanation / Answer
Date Particulars Debit Credit March 1 2009 "Common Stock A/C…….Dr To Cash (Stock of platinum gems purchased)" "124 " "124 " April 13 2009 "Bonds A/C…….Dr To Cash (Bonds of oracle wholesale corporation purchased)" "200 " "200 " July 20 2009 "Cash A/C…….Dr To Cash dividends (To record dividend receipt) " "3 " "3 " Oct 13 2009 "Cash A/C…….Dr To Interest received (To record interest received) " "10 " "10 " Oct 14 2009 "Cash A/C…….Dr To Bonds To profit on sale of bonds (To bonds sold) " "205 " "200 5 " Nov 1 2009 "Prefered Stock A/C…….Dr To Cash (To record purchase of preferred stock of SPI International) " "40 " "40 " Dec 31 2009 "Common Stock A/C…….Dr To Other Comprehensive income (Being recorded fair value of stock of Platinmum gems) " "4 " "4 " Dec 31 2009 "Other Comprehensive income A/C…….Dr To Preferred Stock (Being recorded fair value of stock of SPI international) " "3 " "3 " Jan 25 2010 "Cash A/C…….Dr Other Comprehensive Income A/c…..Dr To Common Stock To Net income (Being recorded sale of common stock of Platinmum gems) " " 65 2 " "64 3" March 1 2010 "Cash A/C…….Dr Net income Alc…Dr To Preferred Stock To other comprehensive income (Being recorded the entry for sale of preferred stock)" " 39 1 " "37 3" Dec 31 2010 "Common Stock A/C…….Dr To Other Comprehensive Income A/c…..Dr (Being recorded fair value of stock of Platinmum gems) " " 1 " 1 Net income = 3-1 = 2million answer happy to hlep