OnJune1,2024,Sam'sRestaurant decides to invest excess cash of$56,000from the tourist season by purchasing aBison,Inc. bond at face value. At year-end, December 31,2024,Bison'sbond had a market value of$52,200.The investment is categorized as an available-for-sale debt investment and will be held for the short-term 1.Journalize the transactions forSam'sinvestment inBison,Inc. for2024.2.In what category and at what value wouldSamreport the asset on the December 31,2024,balance sheet? In what account would the market price change inBison'sstock be reported, if at all?3.What was the net effect of the investment onSam'snet income for the year ended December 31,2024?

Investments are assets which can be categorized into “available for sale”, “held for maturity”, or “held for trading” investments.1. Journal Entries: 2. The investment would be recorded in the asset side, under current assets, in the subhead - “short-term investments”. The investment would be recorded as an Available-for-sale investment in bonds. The unrealized gain or loss, due to fluctuation in the market value of the Available-for-sale investment would be recorded in the equity side, under other comprehensive income. Balance sheet presentation: 3. The unrealized loss or gain would not be reflected in the net income and would be recorded in the “other comprehensive income” under the shareholder’s equity section. When the investment is sold, the gain or loss would be realized and the balance in unrealized gain/loss would be transferred to the net income. In the present case, investment has not been sold. Thus, the decline in market value is an unrealized loss, which is reflected in Other Comprehensive Income and would not affect net income.

Answered: On June 1, 2024, Sam's Restaurant…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

June

2024,

Sam's

Restaurant decides to invest excess cash of

$56,000

from the tourist season by purchasing a

Bison,

Inc. bond at face value. At year-end, December 31,

2024,

Bison's

bond had a market value of

$52,200.

The investment is categorized as an available-for-sale debt investment and will be held for the short-term

1.	Journalize the transactions for Sam's investment in Bison, Inc. for 2024.
2.	In what category and at what value would Sam report the asset on the December 31, 2024, balance sheet? In what account would the market price change in Bison's stock be reported, if at all?
3.	What was the net effect of the investment on Sam's net income for the year ended December 31, 2024?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions