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.

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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.

**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.
Transcribed Image Text:**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.
Transcribed Image Text:**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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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
Transcribed Image Text: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
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
Year 1
4
5
Year 2
Date
April 15
July 05
July 22
August 19
Year 3
December 31
Cash
Gain on sale of debt investments
Debt investments - AFS
Cash
Loss on sale of debt investments
Debt investments - AFS
Debt investments - AFS
Cash
General Journal
Debt investments - AFS
Cash
Fair value adjustment - AFS
Unrealized gain - Equity
Debit
31,500
41,450
7,050
19,900
20,900
2,685
Credit
3,000
28,500
48,500
19,900
20,900
2,685
Transcribed Image Text: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 Year 1 4 5 Year 2 Date April 15 July 05 July 22 August 19 Year 3 December 31 Cash Gain on sale of debt investments Debt investments - AFS Cash Loss on sale of debt investments Debt investments - AFS Debt investments - AFS Cash General Journal Debt investments - AFS Cash Fair value adjustment - AFS Unrealized gain - Equity Debit 31,500 41,450 7,050 19,900 20,900 2,685 Credit 3,000 28,500 48,500 19,900 20,900 2,685
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