Mead Incorporated 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 1January 20Purchased Johnson & Johnson bonds for $28,500.February 9Purchased Sony notes for $62,640.June 12Purchased Mattel bonds for $48,500.December 31Fair values for debt in the portfolio are Johnson & Johnson, $31,100; Sony, $53,150; and Mattel, $56,950.Year 2April 15Sold all of the Johnson & Johnson bonds for $31,500.July 5Sold all of the Mattel bonds for $41,450.July 22Purchased Sara Lee notes for $19,900.August 19Purchased Kodak bonds for $20,900.December 31Fair values for debt in the portfolio are Kodak, $22,125; Sara Lee, $20,000; and Sony, $64,000.Year 3February 27Purchased Microsoft bonds for $159,600.June 21Sold all of the Sony notes for $64,000.June 30Purchased Black & Decker bonds for $58,400.August 3Sold all of the Sara Lee notes for $16,950.November 1Sold all of the Kodak bonds for $25,675.December 31Fair values for debt in the portfolio are Black & Decker, $59,400; and Microsoft, $160,200. Problem 15-2A (Algo) Part 1Required:1. 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. **Journal Entry Worksheet****Fair values for debt in the portfolio are:**- Kodak: $22,125- Sara Lee: $20,000- Sony: $64,000**Note:** Enter debits before credits.| Date | General Journal | Debit | Credit ||----------------|------------------------------|-------|--------|| December 31 | Fair value adjustment - AFS | | || | Unrealized gain - Equity | | |This worksheet provides a structure for calculating and recording adjustments in fair value for available-for-sale (AFS) securities in a portfolio. It includes fields indicating the fair value of securities and guidelines for entering debits and credits to reflect unrealized gains in equity. **Journal Entry Worksheet**_Tab 1 of 6_**Entry Prompt:**Purchased Microsoft bonds for $159,600.*Note: Enter debits before credits.***Table Structure:**- **Date:** February 27- **General Journal:** (Rows for multiple entries)- **Debit:** (Corresponding debit values)- **Credit:** (Corresponding credit values)_Explanation:_This worksheet allows users to record journal entries for financial transactions. In this case, the transaction involves the purchase of Microsoft bonds. The table is structured to record the date of the transaction, the accounts affected (entered in the General Journal section), and the respective debit and credit amounts. The note emphasizes the importance of entering debits before credits to maintain proper accounting standards.

A bond is a fixed-income investment that simulates a loan from an investor to a borrower (typically corporate or governmental). A bond might be compared to an agreement outlining the terms of the loan and the associated payments between the lender and borrower. Companies, municipalities, states, and sovereign governments all use bonds to finance their operations and capital expenditures. Bondholders are the issuer's creditors, or debt holders.Journal entries for year 1: Formula: Answer: Journal entries for year 2: Formula: Answer: Note: The costs of notes of Sony that is 62640 is taken from year 1. Journal entries for year 3: Formula: Answer: Note: The value of unrealized gain is calculated by subtracting the value of cost of bonds or notes from the fair value of the bonds or notes.

Mead Incorporated 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 January 20 Purchased Johnson & Johnson bonds for $28,500. February 9 Purchased Sony notes for $62,640. June 12 Purchased Mattel bonds for $48,500. December 31 Fair values for debt in the portfolio are Johnson & Johnson, $31,100; Sony, $53,150; and Mattel, $56,950. Year 2 April 15 Sold all of the Johnson & Johnson bonds for $31,500. July 5 Sold all of the Mattel bonds for $41,450. July 22 Purchased Sara Lee notes for $19,900. August 19 Purchased Kodak bonds for $20,900. December 31 Fair values for debt in the portfolio are Kodak, $22,125; Sara Lee, $20,000; and Sony, $64,000. Year 3 February 27 Purchased Microsoft bonds for $159,600. June 21 Sold all of the Sony notes for $64,000. June 30 Purchased Black & Decker bonds for $58,400. August 3 Sold all of the Sara Lee notes for $16,950. November 1 Sold all of the Kodak bonds for $25,675. December 31 Fair values for debt in the portfolio are Black & Decker, $59,400; and Microsoft, $160,200. Problem 15-2A (Algo) Part 1 Required: 1. 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.

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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January 20	Purchased Johnson & Johnson bonds for $28,500.
February 9	Purchased Sony notes for $62,640.
June 12	Purchased Mattel bonds for $48,500.
December 31	Fair values for debt in the portfolio are Johnson & Johnson, $31,100; Sony, $53,150; and Mattel, $56,950.

April 15	Sold all of the Johnson & Johnson bonds for $31,500.
July 5	Sold all of the Mattel bonds for $41,450.
July 22	Purchased Sara Lee notes for $19,900.
August 19	Purchased Kodak bonds for $20,900.
December 31	Fair values for debt in the portfolio are Kodak, $22,125; Sara Lee, $20,000; and Sony, $64,000.

February 27	Purchased Microsoft bonds for $159,600.
June 21	Sold all of the Sony notes for $64,000.
June 30	Purchased Black & Decker bonds for $58,400.
August 3	Sold all of the Sara Lee notes for $16,950.
November 1	Sold all of the Kodak bonds for $25,675.
December 31	Fair values for debt in the portfolio are Black & Decker, $59,400; and Microsoft, $160,200.

Problem 15-2A (Algo) Part 1

Required:
1. 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.

**Journal Entry Worksheet**

**Fair values for debt in the portfolio are:**
- Kodak: $22,125
- Sara Lee: $20,000
- Sony: $64,000

**Note:** Enter debits before credits.

| Date | General Journal | Debit | Credit |
|----------------|------------------------------|-------|--------|
| December 31 | Fair value adjustment - AFS | | |
| | Unrealized gain - Equity | | |

This worksheet provides a structure for calculating and recording adjustments in fair value for available-for-sale (AFS) securities in a portfolio. It includes fields indicating the fair value of securities and guidelines for entering debits and credits to reflect unrealized gains in equity.

**Journal Entry Worksheet**

_Tab 1 of 6_

**Entry Prompt:**
Purchased Microsoft bonds for $159,600.

*Note: Enter debits before credits.*

**Table Structure:**

- **Date:** February 27
- **General Journal:** (Rows for multiple entries)
- **Debit:** (Corresponding debit values)
- **Credit:** (Corresponding credit values)

_Explanation:_

This worksheet allows users to record journal entries for financial transactions. In this case, the transaction involves the purchase of Microsoft bonds. The table is structured to record the date of the transaction, the accounts affected (entered in the General Journal section), and the respective debit and credit amounts. The note emphasizes the importance of entering debits before credits to maintain proper accounting standards.

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Follow-up Question

Year 2 and 3 for Fair Value at the end of the year are still incorrect and I do not understand why?

No
1
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.
2
3
4
Year 1
5
6
Year 2
Date
February 27
June 21
June 30
August 03
November 01
Year 3
December 31
Debt investments - AFS
Cash
Cash
Gain on sale of debt investments
Debt investments - AFS
Cash
General Journal
Cash
Loss on sale of debt investments
Debt investments - AFS
Cash
Gain on sale of debt investments
Debt investments - AFS
Fair value adjustment - AFS
Unrealized gain - Equity
X
Debit
159,600
64,000
58,400
16,950
2,950
25,675
1,600
Credit
159,600
1,360
62,640
58,400
19,900
4,775
20,900
1,600 X

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