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Closing Journal Entries for Trading Securities
Asked Dec 10, 2010, 06:46 AM
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9 Answers Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $25 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31. 2011 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $51 million as a speculative investment to be sold under suitable circumstances. 31 Received semiannual interest of $1.2 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $23 million because rising interest rates are expected to cause their fair value to continue to fall. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $36 million as trading securities, hoping to earn profits on short-term differences in prices. 23 Sold the Treasury bonds for $5.7 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $24.22 per share and $9.18 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises. 2012 Jan. 7 Sold the NXS Corporation common shares for $35 million. Required: Prepare the appropriate journal entry for each transaction or event |
9 Answers
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| So far I was abel to do all of the journal entries except for closing the 12/31/2011 and 12/31/2012 closing entries. 12/31/2011 Net Unrealized Holding Gains and Losses I/S Dr. 0.7 Gain on Sale of Investment Dr. 0.1 Investment Revenue Dr. ? (This is what I'm confused on, what amount should go here?) Loss on Sale of Investment Cr. 2.0 Income Summary (I need to figure out investment revenue to figure this amount out) | ||||
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| Here are my jounrnal entries: 2011 10/18 Investment in Milwork Ventures preferred shares Dr. 51 Cash Cr 51 10/31 Cash Dr. 1.2 Investment Revenue Cr 1.2 11/1 Investment in Holistic Entertainment bonds Dr. 18 Cash 18 11/1 Cash Dr. 23 Loss on sale of investment Dr 2 Investment in Kansas Abst. Bonds Cr 25 12/1 Investment in Household Plastics bonds Dr 60 Cash Cr. 60 12/20 Investment in US Tres. Bonds Dr. 5.6 Cash 5.6 12/21 Investment in NXS common shares Dr. 36 Cash 36 12/23 Cash Dr. 5.7 Gain on sale of investments .1 Investments in US tres bonds 5.6 12/29 Cash Dr 3 Investment Revenue 3 Accrued Interest 12/31/2011 Investment revenue receivable-Household Plastics Dr 0.6 Investment revenue receivable-Holistic Entertainment 0.3 Investment revenue 0.9 Revaluations 12/31/2011 Net unrealized holding gains and losses (OCI) DR. 2.6 Fair Value Adjustment 2.6 Fair Value adjustment 0.7 Net unrealized holding gains and losses (I/S) 0.7 Closing entry: 12/31/2011 is posted below. Can you please help me figure out how to get investment revenue? Thank you in advance for your help! | ||||
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| Some things to look at: Check for purchase and selling dates of bond. Is there accrued interest to consider? I'm not saying that you missed anything here, but just want to make sure you watched for it. Your interest accruals look good at 12/31. In adjustments, unless I'm missing something it looks like you rounded your entires to adjust the securities for the change in market price and the entry to record unrealized gains/losses. For example, NXS should be .72. You are right that the gain/loss on NCS would be on the IS since it is a trading security. With Millwork being held for a suitable sale, the gain/loss is reflected as part of equity instead of income. You said the closing entry is "posted below." I'm not seeing it. If I were you, I'd do T-accounts and use those to write the closing entry. They are only looking for a closing entry for 2011. I don't see your entry for 1/7/12. | ||||
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| Closing Entry: 12/31/2011 Net Unrealized Holding Gains and Losses I/S Dr. 0.7 Gain on Sale of Investment Dr. 0.1 Investment Revenue Dr. ? (This is what I'm confused on, what amount should go here?) Loss on Sale of Investment Cr. 2.0 Income Summary (I need to figure out investment revenue to figure this amount out) 1/7/2012 Cash Dr. 35 Loss on sale of investments 1 Investment in NXS common shares 36 12/31/2012 Net Unrealized holding gains and losses (I/S) I don't understand what amount to put here Fair Value adjustment | ||||
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| It looks like you have everything covered except the .9 Investment Revenue from your 12/31/11 adjustment entry. On your 1/7/12 entry, don't forget you adjusted the FMV at 12/31/11 to $36,720,000. I don't believe you are being asked to do anything at 12/31/12. They only gave you entries through 1/7/12, and that was to see if you could adjust for the sale with the 12/31/11 adjustment to FMV. | ||||
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| For the closing entry on 12/31/2011 I put Investment revenue as .9 and it's correct. Closing Entry: 12/31/2011 Net Unrealized Holding Gains and Losses I/S Dr. 0.7 Gain on Sale of Investment Dr. 0.1 Investment Revenue Dr. ? (0.9 is not correct Loss on Sale of Investment Cr. 2.0 Income Summary (I need to figure out investment revenue to figure this amount out) | ||||
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| This is what I got for the closing entry Dec. 31, 2011 Gain on sale of investment $ .1 Net unrealized holding gains and losses $ .7 Investment Revenue $ 5.1 Income Summary $ 3.9 Loss on sale of Investments $ 2 the way you get the Investment revenue is adding the $1.2 from Oct. 31 entry, plus $3 from Dec. 29 entry, and the $.9 from the accrued interest on Dec.31. The way you get the Income summary .1 .7 5.1 5.9 (2) 3.9 Hope this is helpful | ||||
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