80.2K

Verified Solution

Link Copied!

Problem $15-2$A$$Recording$,$ adjusting, and reporting available$-$for$-$sale debt securities$$P$3$Mead Inc. began operations in Year $1.$ Following is a series of transactions and events involving its long$-$term debt investments in available$-$for$-$sale securities$.$Year $1$Jan$\mathrm{.}20$Purchased Johnson & Johnson bonds for $$20,500.$Feb$\mathrm{.}9$Purchased Sony notes for $$55,440.$June$12$Purchased Mattel bonds for $$40,500.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Johnson & Johnson, $$21,500$; Sony, $$52,500$; and Mattel, $$46,350.$Year $2$Apr$\mathrm{.}15$Sold all of the Johnson & Johnson bonds for $$23,500.$July$5$Sold all of the Mattel bonds for $$35,850.$July$22$Purchased Sara Lee notes for $$13,500.$Aug$\mathrm{.}19$Purchased Kodak bonds for $$15,300.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Kodak, $$17,325$; Sara Lee, $$12,000$; and Sony, $$60,000.$Year $3$Feb$\mathrm{.}27$Purchased Microsoft bonds for $$160,800.$June$21$Sold all of the Sony notes for $$57,600.$June$30$Purchased Black & Decker bonds for $$50,400.$Aug$\mathrm{.}3$Sold all of the Sara Lee notes for $$9,750.$Nov$\mathrm{.}1$Sold all of the Kodak bonds for $$20,475.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Black & Decker, $$54,600,$ and Microsoft, $$158,600.$Required$1.$Prepare journal entries to record these transactions and the year$-$end fair value adjustments to the portfolio of long$-$term available$-$for$-$sale debt securities$\mathrm{.}2.$Prepare a table that summarizes the $($a$)$ total cost, $($b$)$ total fair value adjustment, and $($c$)$ total fair value of the portfolio of long$-$term available$-$for$-$sale debt securities at each year$-$end.Check$(2$b$)$ Fair Value Adj. bal.: $12/31/$Year $1,$ $$3,910$ Dr$.$; $12/31/$Year $2,$ $$5,085$ Dr$\mathrm{.}3.$Prepare a table that summarizes $($a$)$ the realized gains and losses and $($b$)$ the unrealized gains or losses for the portfolio of long$-$term available$-$for$-$sale debt securities at each year$-$end.$(3$b$)$ Unrealized Gain at $12/31/$Year $3,$ $$2,000$Problem $15-2$A$$Recording$,$ adjusting, and reporting available$-$for$-$sale debt securities$$P$3$Mead Inc. began operations in Year $1.$ Following is a series of transactions and events involving its long$-$term debt investments in available$-$for$-$sale securities$.$Year $1$Jan$\mathrm{.}20$Purchased Johnson & Johnson bonds for $$20,500.$Feb$\mathrm{.}9$Purchased Sony notes for $$55,440.$June$12$Purchased Mattel bonds for $$40,500.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Johnson & Johnson, $$21,500$; Sony, $$52,500$; and Mattel, $$46,350.$Year $2$Apr$\mathrm{.}15$Sold all of the Johnson & Johnson bonds for $$23,500.$July$5$Sold all of the Mattel bonds for $$35,850.$July$22$Purchased Sara Lee notes for $$13,500.$Aug$\mathrm{.}19$Purchased Kodak bonds for $$15,300.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Kodak, $$17,325$; Sara Lee, $$12,000$; and Sony, $$60,000.$Year $3$Feb$\mathrm{.}27$Purchased Microsoft bonds for $$160,800.$June$21$Sold all of the Sony notes for $$57,600.$June$30$Purchased Black & Decker bonds for $$50,400.$Aug$\mathrm{.}3$Sold all of the Sara Lee notes for $$9,750.$Nov$\mathrm{.}1$Sold all of the Kodak bonds for $$20,475.$Dec$\mathrm{.}31$Fair values for debt in the portfolio are Black & Decker, $$54,600,$ and Microsoft, $$158,600.$Required$1.$Prepare journal entries to record these transactions and the year$-$end fair value adjustments to the portfolio of long$-$term available$-$for$-$sale debt securities$\mathrm{.}2.$Prepare a table that summarizes the $($a$)$ total cost, $($b$)$ total fair value adjustment, and $($c$)$ total fair value of the portfolio of long$-$term available$-$for$-$sale debt securities at each year$-$end.Check$(2$b$)$ Fair Value Adj. bal.: $12/31/$Year $1,$ $$3,910$ Dr$.$; $12/31/$Year $2,$ $$5,085$ Dr$\mathrm{.}3.$Prepare a table that summarizes $($a$)$ the realized gains and losses and $($b$)$ the unrealized gains or losses for the portfolio of long$-$term available$-$for$-$sale debt securities at each year$-$end.$(3$b$)$ Unrealized Gain at $12/31/$Year $3,$ $$2,000$Check$(2$b$)$ Fair Value Adj. bal.: $12/31/$Year $1,$ $$3,910$ Dr$.$; $12/31/$Year $2,$ $$5,085$ Dr$.(3$b$)$ Unrealized Gain at $12/31/$Year $3,$ $$2,000$

Answer & Explanation Solved by verified expert

See Answer