On January 2, 2006 Reddenblack, Inc. bought 2,000 shares of Green Corp.\'s conve
ID: 2466319 • Letter: O
Question
On January 2, 2006 Reddenblack, Inc. bought 2,000 shares of Green Corp.'s convertible, $4 par, 5% preferred stock for $140,000, which it expected to hold for at least three-to-five years. On that day, Reddenblack also bought 10,000 shares (a 25% interest) in Blue Co.’s common stock for $820,000, as well as $120,000 of Purple Company’s common stock (12,000 shares, which Reddenblack expects to increase rapidly in value and to provide short-term gains). On January 3, 2006, Reddenblack acquired $100,000 of 6% mortgage bonds of the Orange Corporation at their face value, which it intends to hold until the bonds mature in 2010. These are the only investments that Reddenblack owns. At December 31, 2006, 1. Purple Company reported earnings of $920,000, paid a cash dividend of $2 per share, and had market value of $12 per share; 2. Green Corp. reported earnings of $743,000, paid its preferred dividend to all shareholders, and had a market value of $65 per share. 3. Orange Corporation reported a net loss from operations of $(21,000), paid its annual interest to bondholders, and had a market value 97; and 4. Blue Co. reported earnings of $560,000 for the year, paid a dividend of $3 per share, and had a market value of $86 per share. Prepare the journal entries for Reddenblack at December 31, 2006, relating to its investments
Explanation / Answer
ReddenBlack Inc Investments Investment Category Qty Amt Unit Cost Div per share/interest paid Fair Value per share on Dec31.2006. Green Corp Convertible 5% prefernce share,$4 par Available for sale 2,000 140,000 70 5% 65.00 Blue Co Common stock (25% share) Equity Investment 10,000 820,000 82 3.00 86.00 Purple Co Stock Trading Investment 12,000 120,000 10 2.00 12.00 Orange Corp Bond at Face value , 6% interest Held till Maturity 100,000 6% Journal Entries on Dec 31.2006 Account Title Dr $ Cr $ Cash 400.0 Dividend Income 400.00 ( recording 5% dividend on $4 par value for 2000 shares) Investment in Green Corporation Pref Shares 10,000.00 Unrealized Holding Gain on Available for sale Investment-OCI 10,000.0 ( recording unrealized loss through OCI) Investment in Blue Company Stock 140,000.0 Equity Income from Blue company Stock 140,000.00 ( recording equity income share of 25% of Blue co profits in 2006) Investment in Blue Company Stock 30,000.00 Cash 30,000.0 ( Recording the receipt of dividend @$3 per share) Cash 24,000.0 Dividend Income 24,000.0 ( recording dividend income) Investment in Purple Co Stock 24,000.0 Unrealized Holding Gain on Trading Securities-Income statement 24,000.0 ( recording fair value unrealized gain through p/L) Cash 6,000.0 Interest Income 6,000.0 ( recording Interest income on Bond)