Question

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities. The following selected transactions relate to Amalgamated’s investment activities during the last quarter of 2018 and the first month of 2019. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value and held in Amalgamated’s trading portfolio. The company’s fiscal year ends on December 31. 2018 Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $66 million. 31 Received semiannual interest of $1.8 million from the Kansas Abstractors bonds. Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $48 million face value, to be held until they mature in 2025. Semiannual interest is payable April 30 and October 31. 1 Sold the Kansas Abstractors bonds for $21 million because rising interest rates are expected to cause their fair value to continue to fall. No unrealized gains and losses had been recorded on these bonds previously. Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $40 million face value, to be held until they mature in 2028. Semiannual interest is payable May 31 and November 30. 20 Purchased U. S. Treasury bonds for $6.3 million as trading securities, hoping to earn profits on short-term differences in prices. 21 Purchased 4 million common shares of NXS Corporation for $58 million, planning to earn profits from dividends or gains if prevailing market conditions encourage sale. 23 Sold the Treasury bonds for $7.0 million. 29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares. 31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Millwork Ventures Company preferred stock was $32.00 per share and $16.00 per share for the NXS Corporation common. The fair values of the bond investments were $62.2 million for Household Plastics Corporation and $17.4 million for Holistic Entertainment Enterprises. 2019 Jan. 7 Sold the NXS Corporation common shares for $57 million.

Required: Prepare the appropriate journal entry for each transaction or event.

Answer 1

	Date	Account titles							Debit	Credit
	2018								($ in millions)
	Oct 18.	Investment in Millwork ventures							66
		Cash								66
		(Purchased preferred shares)
	Oct 31.	Cash							1.8
		Investment revenue								1.8
		(Received interest from bonds)
	Nov 1.	Investment in Holistic entertainment							48
		Cash								48
		(Purchased bonds)
	Nov 1.	Cash							21
		Loss on sale of investments				(30-21)			9
		Investment in Kansas abstractors bonds								30
		(Bonds sold)
	Dec 1.	Investment in Household plastic corporation bonds							40
		Cash								40
		(Purchased bonds)
	Dec 20.	Investment in US treasury bonds							6.3
		Cash								6.3
		(Purchased treasury bonds)
	Dec 21.	Investment in NXS corporation							58
		Cash								58
		(Purchased common shares)
	Dec 23.	Cash							7
		Investment in US treasury bonds								6.3
		Gain on sale of investments				(7-6.3)				0.7
		(Bonds sold)
	Dec 29.	Cash							3
		Investment revenue								3
		(Dividend received)
	Dec 31.	Investment revenue receivable-Holistic entertainment					(48*10%*2/12)		0.8
		Investment revenue receivable-household plastics					(40*12%*1/12)		0.4
		Investment revenue								1.2
		(Interest accrued )
	Dec 31.	Net unrealized holding gains and losses-OCI					66-(2*32)		2
		Fair value adjustment								2
		(Millwork ventures preferred shares revalued and loss recorded)
	Dec 31.	Fair value adjustment					(4*16)-58		6
		Net unrealized holding gains and losses-I/S								6
		(NXS corporation common shares revalued and gain recorded)
	Dec 31.	Net unrealized holding gains and losses-I/S							6
		Investment revenue				(3+1.2+1.8)			6
		Gain on sale of investments							0.7
		Loss on sale of investments								9
		Income summary				(Balancing figure)				3.7
		(Closing entry)
	2019
	Jan 1.	Cash							57
		Loss on sale of investments							1
		Investment in NXS corporation								58
		(Investment sold)