Question

White company had no investments prior to the current year. It had the following transactions involving short-term available-for-sale and held-to-maturity securities during the year. Prepare journal entries to record the following transactions associated with the investment purchases. January 10 Purchased 6,000 shares of Gray Company stock at $15.00 plus a broker's fee of $700. (Classified as short-term available-for-sale securities) June 1 purchased $180,000 of Duke Company 4%, five-year bonds at par value. Interest payments are paid semiannually on June 1 and December 1. (Classified as held-to- maturity) July 1 Sold 3,000 shares of Gray company stock at $22 less a $600 brokerage fee. December 1 Received a check for the first semiannual interest payment on the Duke Company bonds. Answer (show calculations in description of JE when appropriate) Date Description DR CR Jan. 10 June 1 July 1 Dec. 1

Answer 1

Answer:

Gray stocks        90,700 debit

       Cash                  90,700 credit

Duke- Bond    180,000 debit

       Cash             180,000 credit

Cash          65,400 debit

  Gray stocks           45,350 credit

 Gain on Securities 20,050 credit

Dec 1st

Cash     3,600 debit

  Interest revenue   3,600 credit

Explanation:

Jan 10th

6,000 x $15 + 700 fee = $90,700

June 1st we record at cost as it was purchase at par.

July 1st

3,000 x $22 - 600 fee = $65,400

Cost: 90,700 x 3,000/6,000 = 45,350

Gain 65,400 - 45,350 = 20.050‬

December 1st

180,000 x 0.02 = $3,600

the rate is 4% payment semiannually so we divide the rate by 2.