Holly Company invests its excess cash in marketable securities. At the beginning of 2007 it had the

Question:

Holly Company invests its excess cash in marketable securities. At the beginning of 2007 it had the following portfolio of investments in available-for-sale securities:

During 2007, the following transactions occurred:
Mar. 31 Purchased U Company 8% bonds with a face value of $10,000 for $10,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31
May 17 Sold 200 shares of O Company common stock for $30 per share
June 30 Received the semiannual interest on the U Company bonds
Oct. 12 Sold 100 shares of I Company common stock for $24 per share
Dec. 31 Received the semiannual interest on the U Company bonds and dividends of $1 per share and $1.50 per share on the I and O Company common stock, respectively
The December 31 closing market prices were as follows: I Company common stock, $25 per share; O Company common stock, $31 per share; U Company 8% bonds, 101.

Required
1. Prepare journal entries to record the preceding information.
2. Show what is reported on the Holly Company's 2007 income statement.
3. Assuming the investment in I Company stock is considered to be a current asset and the remaining investments are noncurrent, show how all the items are reported on the December 31, 2007 balance sheet of the Holly Company.
4. If GAAP required that unrealized holding gains and losses on available-for-sale securities be included in income, how much would Holly recognize in2007?

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...