Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short-term stock investments with insignificant influence. Apr. 16 Purchased 3,500 shares of Gem Co. stock at $24 per share. July 7 Purchased 2,000 shares of PepsiCo stock at $49 per share. 20 Purchased 1,000 shares of Xerox stock at $16 per share. Aug. 15 Received a $1.00 per share cash dividend on the Gem Co. stock. 28 Sold 2,000 shares of Gem Co. stock at $30 per share. Oct. 1 Received a $2.50 per share cash dividend on the PepsiCo shares. Dec. 15 Received a $1.00 per share cash dividend on the remaining Gem Co. shares. 31 Received a $1.50 per share cash dividend on the PepsiCo shares. Required 1. Prepare journal entries to record the preceding transactions and events. 2. Prepare a table to compare the year-end cost and fair values of Rose’s short-term stock investments. The year-end fair values per share are Gem Co., $26; PepsiCo, $46; and Xerox, $13. 3. Prepare an adjusting entry to record the year-end fair value adjustment for the portfolio of short-term stock investments. Analysis Component 4. Explain the balance sheet presentation of the fair value adjustment for Rose’s short-term investments. 5. How do these short-term stock investments affect Rose’s (a) income statement for this year and (b) the equity section of its balance sheet at this year-end?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter14: Corporation Accounting

Section: Chapter Questions

Problem 21EB: Brunleigh Corporation earned net income of $200,000 this year. The company began the year with...

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Rose Company had no short-term investments prior to this year. It had the following transactions this year
involving short-term stock investments with insignificant influence.
Apr. 16 Purchased 3,500 shares of Gem Co. stock at $24 per share.
July 7 Purchased 2,000 shares of PepsiCo stock at $49 per share.
20 Purchased 1,000 shares of Xerox stock at $16 per share.
Aug. 15 Received a $1.00 per share cash dividend on the Gem Co. stock.
28 Sold 2,000 shares of Gem Co. stock at $30 per share.
Oct. 1 Received a $2.50 per share cash dividend on the PepsiCo shares.
Dec. 15 Received a $1.00 per share cash dividend on the remaining Gem Co. shares.
31 Received a $1.50 per share cash dividend on the PepsiCo shares.
Required
1. Prepare journal entries to record the preceding transactions and events.
2. Prepare a table to compare the year-end cost and fair values of Rose’s short-term stock investments.
The year-end fair values per share are Gem Co., $26; PepsiCo, $46; and Xerox, $13.
3. Prepare an adjusting entry to record the year-end fair value adjustment for the portfolio of short-term
stock investments.
Analysis Component
4. Explain the balance sheet presentation of the fair value adjustment for Rose’s short-term investments.
5. How do these short-term stock investments affect Rose’s (a) income statement for this year and (b) the
equity section of its balance sheet at this year-end?

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