Question

Freema Company had no short-term investments prior to year 2011. It had the following transactions involving short-term investments in available-for-sale securities during 2011.
Apr. 16 Purchased 8,000 shares of Gem Co. stock at $29.75 per share plus a $440 brokerage fee.
May 1 Paid $125,000 to buy 90-day U.S. Treasury bills (debt securities): $125,000 principal amount, 4% interest, securities dated May 1.
July 7 Purchased 4,000 shares of PepsiCo stock at $47.75 per share plus a $410 brokerage fee.
20 Purchased 2,000 shares of Xerox stock at $19.75 per share plus a $490 brokerage fee.
Aug. 3 Received a check for principal and accrued interest on the U.S. Treasury bills that matured on July 29.
15 Received a $0.90 per share cash dividend on the Gem Co. stock.
28 Sold 4,000 shares of Gem Co. stock at $36.50 per share less a $250 brokerage fee.
Oct. 1 Received a $1.75 per share cash dividend on the PepsiCo shares.
Dec. 15 Received a $1.05 per share cash dividend on the remaining Gem Co. shares.
31 Received a $1.30 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 Freema’s short-term investments in available-for-sale securities. The year-end fair values per share are: Gem Co., $32.00; PepsiCo, $45.00; and Xerox, $16.75.
3. Prepare an adjusting entry, if necessary, to record the year-end fair value adjustment for the portfolio of short-term investments in available-for-sale securities.
Analysis Component
4. Explain the balance sheet presentation of the fair value adjustment for Freema’s short-term investments.
5. How do these short-term investments affect Freema’s
(a) Income statement for year 2011
(b) The equity section of its balance sheet at year-end 2011?


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  • CreatedMarch 18, 2015
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