Aranda Corporation made the following cash purchases of securities during 2020, which is the first year in which Aranda invested in securities. 1.    On January 15, purchased 10,000 shares of Sanchez Company's common stock at $33.50 per share plus commission $1,980. 2.    On April 1, purchased 5,000 shares of Vicario Co.'s common stock at $52.00 per share plus commission $3,370. 3.    On September 10, purchased 7,000 shares of WTA Co.'s preferred stock at $26.50 per share plus commission $4,910. On May 20, 2020, Aranda sold 4,000 shares of Sanchez Company's common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Aranda told you that the corporation plans to hold these securities for the long-term but may sell them in order to earn profits from appreciation in prices. The equity method of accounting is not appropriate for these stock purchases. Instructions  a. Prepare the journal entries to record the above three security purchases.  b. Prepare the journal entry for the security sale on May 20.  c. Compute the unrealized gains or losses and prepare the adjusting entries for Aranda on December 31, 2020.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Aranda Corporation made the following cash purchases of securities during 2020, which is the first year in which Aranda invested in securities.

1.    On January 15, purchased 10,000 shares of Sanchez Company's common stock at $33.50 per share plus commission $1,980.

2.    On April 1, purchased 5,000 shares of Vicario Co.'s common stock at $52.00 per share plus commission $3,370.

3.    On September 10, purchased 7,000 shares of WTA Co.'s preferred stock at $26.50 per share plus commission $4,910.

On May 20, 2020, Aranda sold 4,000 shares of Sanchez Company's common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share were Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Aranda told you that the corporation plans to hold these securities for the long-term but may sell them in order to earn profits from appreciation in prices. The equity method of accounting is not appropriate for these stock purchases.

Instructions

 a. Prepare the journal entries to record the above three security purchases.

 b. Prepare the journal entry for the security sale on May 20.

 c. Compute the unrealized gains or losses and prepare the adjusting entries for Aranda on December 31, 2020.

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