Question

American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2018, gains from selling trading securities totaled $7 million, losses were $11 million, and the company had earned $5 million in investment revenue. The following selected transactions relate to American's trading account and equity securities investment account during December 2018, and the first week of 2019. The company's fiscal year ends on December 31. No trading securities were held by American on December 1, 2018.

2018
Dec.		12		Purchased FF&G Corporation bonds for $16 million.
		13		Purchased 2 million Ferry Intercommunications common shares for $30 million.
		15		Sold the FF&G Corporation bonds for $16.4 million.
		22		Purchased U.S. Treasury bills for $56 million and Treasury bonds for $69 million.
		23		Sold half the Ferry Intercommunications common shares for $13 million.
		26		Sold the U.S. Treasury bills for $60 million.
		27		Sold the Treasury bonds for $65 million.
		28		Received cash dividends of $200,000 from the Ferry Intercommunications common shares.
		31		Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market price of the Ferry Intercommunications stock was $13 per share.

2019
Jan.		2		Sold the remaining Ferry Intercommunications common shares for $13.4 million.
		5		Purchased Warehouse Designs Corporation bonds for $38 million.

Required:
1. Indicate any amounts that American would report in its 2018 balance sheet and income statement as a result of these investments.

  

Answer 1

Account title & explanation Debit Credit Date 25 26 2018 12-Dec Investment in FF&G Corporation bonds 27 16 Cash 28 16 29 13-Dec Investment in Ferry common shares 30 30 Cash 30 32 15-Dec Cash 33 16.4 Investment in FF&G Corporation bonds 34 16 Gain on Sale of Investment 35 0.4 36 22-Dec Investment in U.S. treasury bills Investment in U.S. treasury bonds 37 56 38 69 Cash 39 125 40 23-Dec Cash 41 13 Loss on Sale of Investment 2 42 Investment in Ferry common shares 43 15 44 26-Dec Cash 45 60 Investment in U.S. treasury bills 46 56 47 Gain on Sale of Investment 4

27-Dec Cash 49 65 Loss on Sale of Investment 4. 50 Investment in U.S. treasury bonds 51 69 52 53 31-Dec Cash 0.2 Investment revenue 54 0.2 55 31-Dec Net unrealized holding gains and losses-I/s Fair value adjustment (30/2-13) 56 57 58 31-Dec Income Summary 59 2.4 60 Investment Revenue 5.2 Gain on Sale of Investment 61 11.4 Loss on Sale of Investment 62 17 Net unrealized holding gains and losses-1/s 63 2 64 Balance sheet (short-term investment): 65 Trading Securities 66 15 LessFair value adjustment 67 -2 Total 68 13 69 2. 2.

70 Income statement 71 Investment Revenue 5.2 Gain on Sale of Investment 72 11.4 Loss on Sale of Investment 73 -17 Net unrealized holding gains and losses 74 -2 Total 75 -2.4 76 77