Chapter C, Problem 1GLP

To determine

Journal Entry:

Journal is the primary record of the business transaction in chronological (date wise) order. Journal entry contains two effects, one is debit and other is credit, under double entry book keeping system.

Adjusting Entries:

Adjusting entries are made at the end of the year to adjust the financial position of the enterprise according to accrual basis of accounting.

1.

To prepare: Journal entries to record the transactions of year 2017.

Explanation of Solution

To record purchase of 4,000shares of G company at $24.25 per share plus $180 as commission

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
April 16	Short term investment		97,180
	Cash			97,180
	(Being short term investment purchase against cash)

      Table (1)

• The short term investment of R Company is increase. The short term investment is the asset of the company and the current asset of R Company also increases.
• The cash account is decrease by $97,180 and the credit of cash means that the current asset of the company also decreases.

To record purchase of 3 months US Treasury bill of $100,000, 6% interest mature on July 31,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
May 1	Short term investment		100,000
	Cash			100,000
	(Being short term investment purchase against cash)

      Table (2)

• The short term investment of R Company is increase. The short term investment is the asset of the company and the current asset of R Company also increases.
• The cash account is decrease by $100,000 and the credit of cash means that the current asset of the company also decreases.

To record purchase of 2,000shares of P company at $49.25 per share plus $180 as commission

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July 7	Short term investment		98,675
	Cash			98,675
	(Being short term investment purchase against cash)

      Table (3)

• The short term investment of R Company is increase. The short term investment is the asset of the company and the current asset of R Company also increases.
• The cash account is decrease by $98,675 and the credit of cash means that the current asset of the company also decreases.

To record purchase of 1,000shares of X stock at $16.75 per share plus $205 as commission

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July 20	Short term investment		98,675
	Cash			98,675
	(Being short term investment purchase against cash)

      Table (4)

• The short term investment of R Company is increase. The short term investment is the asset of the company and the current asset of R Company also increases.
• The cash account is decrease by $98,675 and the credit of cash means that the current asset of the company also decreases.

Received interest on US Treasury bills, and the bill matured as on July 31,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
August 1	Cash		101,500
	Short term investment			100,000
	Interest revenue			1,500
	(Being short term investment mature and interest received)

      Table (5)

• Short term investment credit as the investment mature and the balance of short term investment decreases.
• Cash account debit, as cash is receive when investment mature and interest earn
• The interest revenue account credit, as income receives in the form of interest to R Company.

Receive $0.85 per share cash dividend on G Company stock,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
August 15	Cash		3,400
	Dividend revenue			3,400
	(Being cash dividend received)

      Table (6)

• Cash account debit as cash is received from G Company as cash dividend,
• Dividend revenue account credit as it increase the income of R Company. The dividend revenue account has credit balance.

To record sale of 2,000 share of G Company at $30 and commission is $225.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Aug 28	Cash		59,775
	Gain on sale of short term investment			11,185
	Short term investment			48,590
	(Being short term investment sold at a gain of $1,990 and receive cash )

      Table (7)

• Cash receive at the time of sale of investment it increases the cash balance and the asset of the company also increases.
• By the sale of short term investment, the short term investment account decreases and the asset of the company also decreases with $48,590 amount.
• At the time of sale C Company receives the gain on sale of investment and this gain is credited to the gain on sale of short term investment account.

Receive $1.90 per share cash dividend on P Company stock,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Oct 1	Cash		3,800
	Dividend revenue			3,800
	(Being cash dividend received)

      Table (8)

• Cash account debit as cash is received from P Company as cash dividend,
• Dividend revenue account credit as it increase the income of R Company. The dividend revenue account has credit balance.

Receive $1.05 per share cash dividend on G Company stock,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Dec 15	Cash		2,100
	Dividend revenue			2,100
	(Being cash dividend received)

      Table (9)

• Cash account debit as cash is received from G Company as cash dividend,
• Dividend revenue account credit as it increase the income of R Company. The dividend revenue account has credit balance.

Receive $1.30 per share cash dividend on P Company stock,

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
Dec 31	Cash		2,600
	Dividend Revenue			2,600
	(Being cash dividend received)

      Table (10)

• Cash account debit as cash is received from G Company as cash dividend,
• Dividend revenue account credit as it increase the income of R Company. The dividend revenue account has credit balance.

Working notes:

Calculation of the value of purchase price of shares of G Company,

  $\begin{array}{c}\text{Purchase price of shares}=\left(\text{Number of shares}\times \text{share price}\right)+\text{Commision}\\ \text{=}\left(4,000\times \$24.25\right)+\$180\\ =\$97,000+\$180\\ =\$97,180\end{array}$

Calculation of the value of purchase price of shares of P Company,

  $\begin{array}{c}\text{Purchase price of shares}=\left(\text{Number of shares}\times \text{share price}\right)+\text{Commision}\\ \text{=}\left(2,000\times \$49.25\right)+\$175\\ =\$98,500+\$175\\ =\$98,675\end{array}$

Calculation of the value of purchase price of shares of X stock,

  $\begin{array}{c}\text{Purchase price of shares}=\left(\text{Number of shares}\times \text{share price}\right)+\text{Commision}\\ \text{=}\left(2,000\times \$49.25\right)+\$175\\ =\$98,500+\$175\\ =\$98,675\end{array}$

Calculation of interest on US Treasury bills,

  $\begin{array}{c}\text{Interest}=\text{Amount}\times \text{Rate}\times \text{Time period}\\ =\$100,000\times \frac{6}{100}\times \frac{3}{12}\\ =1,500\end{array}$

Calculation of cash dividend of G Company,

  $\begin{array}{c}\text{Cash dividend}=\text{Number of share}\times \text{Rate of dividend}\\ =4,000\times \$0.85\\ =\$3,400\end{array}$

Calculation of sale price of shares of F Company,

  $\begin{array}{c}\text{Sale price of shares}=\left(\text{Number of shares}\times \text{share price}\right)-\text{Broker fee}\\ \text{=}\left(2,000\times \$30\right)-\$225\\ =\$60,000-\$225\\ =\$59,775\end{array}$

Calculation of Gain in the sale of investment of F Company,

  $\begin{array}{c}\text{Gain}=\text{Sale Price}-\text{Cost of short term investment}\\ =\$59,775-\$48,590\\ =\$11,185\end{array}$

Calculation of cash dividend of P Company as on October 1,

  $\begin{array}{c}\text{Cash dividend}=\text{Number of share}\times \text{Rate of dividend}\\ =2,000\times \$1.90\\ =\$3,800\end{array}$

Calculation of cash dividend of G Company,

  $\begin{array}{c}\text{Cash dividend}=\text{Number of share}\times \text{Rate of dividend}\\ =2,000\times \$1.05\\ =\$2,100\end{array}$

Calculation of cash dividend of P Company as on December 31,

  $\begin{array}{c}\text{Cash dividend}=\text{Number of share}\times \text{Rate of dividend}\\ =2,000\times \$1.30\\ =\$2,600\end{array}$