On August 4, 2015, Jeffrey Corporation purchased 4,200 shares of Kevin Company for $239,400. The following information applies to the stock price of Kevin Company:
| Price | |||
| 12/31/2015 | $ | 56 | |
| 12/31/2016 | 61 | ||
| 12/31/2017 | 65 | ||
Kevin Company declares and pays cash dividends of $3.00 per share on June 1 of each year.
Required:
1. Prepare journal entries to record the facts in the case, assuming that Jeffrey purchased the shares for the trading securities portfolio.
1.
Computations for year-end adjustments to market:
| Year | Fair Value | − | Book Value before Adjustment | = | Amount for Adjusting Entry | |||||||||
| 2015 | $235,200 | − | $239,400 | = | − | $4,200 | ||||||||
| ($56 × 4,200 shares) | ||||||||||||||
| 2016 | 256,200 | − | 235,200 | = | + | 21,000 | ||||||||
| ($61 × 4,200 shares) | (from prior fair value) | |||||||||||||
| 2017 | 273,000 | − | 256,200 | = | + | 16,800 | ||||||||
| ($65 × 4,200 shares) | (from prior fair value) | |||||||||||||
2. Prepare journal entries to record the facts in the case, assuming that Jeffrey purchased the shares for the available-for-sale securities portfolio.
2.
Computations for year-end adjustments to market:
| Year | Fair Value | − | Book Value before Adjustment | = | Amount for Adjusting Entry | |||||||||
| 2015 | $235,200 | − | $239,400 | = | − | $4,200 | ||||||||
| ($56 × 4,200 shares) | ||||||||||||||
| 2016 | 256,200 | − | 235,200 | = | + | 21,000 | ||||||||
| ($61 × 4,200 shares) | (from prior fair value) | |||||||||||||
| 2017 | 273,000 | − | 256,200 | = | + | 16,800 | ||||||||
| ($65 × 4,200 shares) | (from prior fair value) | |||||||||||||
| Balance in net unrealized gains (losses) for AFS securities | + | $33,600 | ||||||||||||
3.
Dec. 31, 2015: (40% × $57,000) = $22,800
Dec. 31, 2016: (40% × $57,000) = $22,800
Dec. 31, 2017: (40% × $57,000) = $22,800
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