Chapman International offers financial services through its mortgage division. Periodically, Chapman buys and sells securities with the
Question:
Chapman International offers financial services through its mortgage division. Periodically, Chapman buys and sells securities with the intent of earning profits on short-term differences in price. The following selected transactions relate to Chapman's investment activities during the last quarter of 2022 and the beginning of 2023.
The only securities held by Chapman on October 1, 2022, were $1,000,000 of 4% bonds of Tripp Corporation that were purchased on August 2, 2022 at face value as a speculative investment. The Tripp Corporation bonds pay interest semiannually on July 31 and January 31. Chapman's fiscal year ends on December 31. 2022
October 15 Purchased 100,000 shares of Franklin Company preferred stock for $2,000,000 as a speculative investment. Chapman plans to sell the Franklin preferred stock under suitable circumstances.
November 1 Purchased 5% bonds of Braxton, Inc., at their $1,500,000 face value, to be held to maturity until 2023. Semiannual interest is payable on April 30and October 31.
November 1 Purchased 3% bonds of Winkler Company at their $4,000,000 face value,
to be held until they mature in 2030. Semiannual interest is payable April
30 and October 31.
December 1 Sold the Tripp bonds for $900,000 because rising interest rates are
expected to cause their fair value to continue to fall.
December 15 Purchased U.S. Treasury bonds for $500,000 as trading securities, hoping
to earn profits on short-term differences in prices.
December 16 Purchased 200,000 common shares of Percy Corporation for $2,000,000
as trading securities, hoping to earn profits on short-term differences in
prices. This represents a 2% investment in Percy Corporation.
December 24 Sold the treasury bonds for $520,000.
December 27 Received cash dividends of $80,000 from Franklin Company preferred
shares.
December 31 Recorded any necessary adjusting entries related to the investments.
The market price of the Franklin Company preferred stock was $23 per
share; the market price for the Percy Corporation common stock was $8
per share. The fair value of the Braxton, Inc., bond investment was
$2,200,000; the fair value of the Winkler Company bond investment was
$4,800,000.
2023
February 1 Sold the Percy Corporation shares for $2,300,000.
Prepare all required journal entries through February 1, 2023.
Intermediate Accounting
ISBN: 978-1260481952
10th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas