Question: Rose Company had no short term investments prior to year

Rose Company had no short- term investments prior to year 2013. It had the following transactions involving short-term investments in available-for-sale securities during 2013.
Apr. 16 Purchased 4,000 shares of Gem Co. stock at $24.25 per share plus a $180 brokerage fee.
May 1 Paid $ 100,000 to buy 90-day U. S. Treasury bills (debt securities): $ 100,000 principal amount, 6% interest, securities dated May 1.
July 7 Purchased 2,000 shares of PepsiCo stock at $ 49.25 per share plus a $ 175 brokerage fee.
20 Purchased 1,000 shares of Xerox stock at $ 16.75 per share plus a $ 205 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 an $ 0.85 per share cash dividend on the Gem Co. stock.
28 Sold 2,000 shares of Gem Co. stock at $ 30 per share less a $ 225 brokerage fee.
Oct. 1 Received a $ 1.90 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.

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 investments in available-for-sale securities. The year-end fair values per share are: Gem Co., $ 26.50; PepsiCo, $ 46.50; and Xerox, $ 13.75.
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 Rose’s short-term investments.
5. How do these short-term investments affect Rose’s?
(a) Income statement for year 2013
(b) The equity section of its balance sheet at year- end 2013?

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  • CreatedNovember 26, 2013
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