Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities LO P3Skip to question [The following information applies to the questions displayed below.] 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 1Jan. 20 Purchased Johnson & Johnson bonds for $25,000.Feb. 9 Purchased notes of Sony for $59,490.June 12 Purchased bonds of Mattel for $45,000.Dec. 31 Fair values for debt in the portfolio are Johnson & Johnson, $26,900; Sony, $49,050; and Mattel, $55,950.Year 2Apr. 15 Sold all of the bonds of Johnson & Johnson for $28,000.July 5 Sold all of the bonds of Mattel for $39,000.July 22 Purchased notes of Sara Lee for $17,100.Aug. 19 Purchased bonds of Kodak for $18,450.Dec. 31 Fair values for debt in the portfolio are Kodak, $18,900; Sara Lee, $16,500; and Sony, $63,000.Year 3Feb. 27 Purchased bonds of Microsoft for $161,000.June 21 Sold all of the notes of Sony for $61,200.June 30 Purchased bonds of Black & Decker for $54,900.Aug. 3 Sold all of the notes of Sara Lee for $13,800.Nov. 1 Sold all of the bonds of Kodak for $23,400.Dec. 31 Fair values for debt in the portfolio are Black & Decker, $57,300; and Microsoft, $159,500. ### Journal Entries for Long-term Available-for-sale Debt Securities#### Instructions: Complete this question by entering your answers in the tabs below for Year 1, Year 2, and Year 3.**Objective:**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.#### Transactions Summary:1. **January 20th** - *Transaction:* Purchase of debt investments classified as available-for-sale (AFS). - **Debit**: Debt investments - AFS, $25,000 - **Credit**: Cash, $25,0002. **February 9th** - *Transaction:* Purchase of additional debt investments classified as AFS. - **Debit**: Debt investments - AFS, $59,490 - **Credit**: Cash, $59,4903. **June 12th** - *Transaction:* Purchase of further debt investments classified as AFS. - **Debit**: Debt investments - AFS, $45,000 - **Credit**: Cash, $45,0004. **December 31st** - *Transaction:* Year-end adjustment of the fair value of AFS securities. - **Debit**: Fair value adjustment - AFS - **Credit**: Unrealized gain - Equity**Note:** The amounts for the December 31st entry are not specified in the table and should be calculated based on the fair value changes at year-end.This exercise involves recording transactions that affect the investment and cash balances, and adjusting the portfolio's fair value at the end of the year, reflecting any unrealized gains directly in equity.

If the fair value is more than the book value then it is a gain and if the fair value is less than the book value then it is a loss. Unrealized gain account is credited to record the gain and debited to record the loss. NOTE if an investment is sold in any year subsequent to year of purchase ,loss in disposal is charged against provision for depreciation to the extent balance available and the balance of loss if any should be charged directly to the revenue account.year 1 No. Date General Particulars Debit Credit 1 jan20 Debt Investments AFS 25000 To cash 25000 2 Feb 09 Debt investments AFS 59490 To cash 59490 3 jun 12 Debt investments AFS 45000 To cash 45000 4 dec 31 Fair value adjustment AFS 2410 To unrealized gain 2410 working note calculation of unralized gain or loss: investment cost fair value unrealized gain /loss johnson &johnson 25000 26900 1900 gain sony 59490 49050 10440 loss Metal 45000 55950 10950 gain Net unrealized gain = 2410 year 2 date particulars Debit Credit jan 1 unrealized gain account 2410 To fair value adjustment 2410 (Being entry has been reversed at the beginning of next year) april 5 Bank account 28000 To debt investment (johnson) 25000 To Gain on investment 3000 july 5 Bank account 39000 loss on investment 6000 To Debt investment (bonds of mattel) 45000 july22 debt investment AFS 17100 To cash 17100 aug 19 Debt investment AFS 18450 To cash 18450 Dec31 Fair value adjustment account AFS 13800 To unrealized gain 13800 working note investment cost fair value gain /loss Sara lee 17100 16500 600 loss Kodak 18450 18900 450 gain Sony 49050 63000 13950 gain Net realized gain = $13800YEAR 3 (in $) Date Particulars Debit Credit jan 1 Unrealized gain account 13800 To fair value adjustment account 13800 Feb 27 Debt investment AFS 161000 To cash 161000 june21 Bank account 61200 Loss on investment 1800 To debt investment (sony ) 63000 june30 Debt investment 54900 To cash 54900 aug 3 Bank account 13800 loss on disposal of investment (sara lee) 2700 To debt investment(sara lee) 16500 nov 1 Bank account 23400 To debt investment (kodak) 18450 To gain on investment 4950 dec 31 Fair value adjustments account (AFS) 900 To unrealized gain 900 working note investment cost fair value gain /loss Black &decker 54900 57300 2400 gain Microsoft 161000 159500 1500 loss Net unrealized gain = 900

Answered: blem 15-2A Recording, adjusting, and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 15-2A Recording, adjusting, and reporting available-for-sale debt securities LO P3

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[The following information applies to the questions displayed below.]

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.	20	Purchased Johnson & Johnson bonds for $25,000.
Feb.	9	Purchased notes of Sony for $59,490.
June	12	Purchased bonds of Mattel for $45,000.
Dec.	31	Fair values for debt in the portfolio are Johnson & Johnson, $26,900; Sony, $49,050; and Mattel, $55,950.

Year 2

Apr.	15	Sold all of the bonds of Johnson & Johnson for $28,000.
July	5	Sold all of the bonds of Mattel for $39,000.
July	22	Purchased notes of Sara Lee for $17,100.
Aug.	19	Purchased bonds of Kodak for $18,450.
Dec.	31	Fair values for debt in the portfolio are Kodak, $18,900; Sara Lee, $16,500; and Sony, $63,000.

Year 3

Feb.	27	Purchased bonds of Microsoft for $161,000.
June	21	Sold all of the notes of Sony for $61,200.
June	30	Purchased bonds of Black & Decker for $54,900.
Aug.	3	Sold all of the notes of Sara Lee for $13,800.
Nov.	1	Sold all of the bonds of Kodak for $23,400.
Dec.	31	Fair values for debt in the portfolio are Black & Decker, $57,300; and Microsoft, $159,500.

### Journal Entries for Long-term Available-for-sale Debt Securities

#### Instructions:
Complete this question by entering your answers in the tabs below for Year 1, Year 2, and Year 3.

**Objective:**
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.

#### Transactions Summary:

1. **January 20th**
- *Transaction:* Purchase of debt investments classified as available-for-sale (AFS).
- **Debit**: Debt investments - AFS, $25,000
- **Credit**: Cash, $25,000

2. **February 9th**
- *Transaction:* Purchase of additional debt investments classified as AFS.
- **Debit**: Debt investments - AFS, $59,490
- **Credit**: Cash, $59,490

3. **June 12th**
- *Transaction:* Purchase of further debt investments classified as AFS.
- **Debit**: Debt investments - AFS, $45,000
- **Credit**: Cash, $45,000

4. **December 31st**
- *Transaction:* Year-end adjustment of the fair value of AFS securities.
- **Debit**: Fair value adjustment - AFS
- **Credit**: Unrealized gain - Equity

**Note:** The amounts for the December 31st entry are not specified in the table and should be calculated based on the fair value changes at year-end.

This exercise involves recording transactions that affect the investment and cash balances, and adjusting the portfolio's fair value at the end of the year, reflecting any unrealized gains directly in equity.

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