Question

Question: P10-22B Classifying and accounting for debt and equity investments

Captain Transfer Corporation generated excess cash and invested in securities as follows:

2018

Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at \(13.00 per share. Captain Transfer plans to sell the stock within three months, when the company will need the cash for normal operations. Captain Transfer does not have significant influence over Naradon.

Aug. 21 Received a cash dividend of \)0.40 per share on the Nardon stock investment.

Sep. 16 Sold the Naradon stock for \(13.70 per share.

Oct. 1 Purchased a Purple bond for \)40,000 at face value. Captain Transfer classifies the investment as trading and short-term.

Dec. 31 Received a \(600 interest payment from Purple.

31 Adjusted the Purple bond to its market value of \)44,000.

Requirements

Journalize the 2018 transactions. Explanations are not required.

Short answer

Answer

Both sides of the journal total$158,420.

Step-by-step solution

Definition of Trading Securities

The securities that were purchased with the primary motive of generating a profit by selling them over a short period are known as trading securities. These securities provide benefits when their value increases.

Journal Entries for Transactions of 2018

Date	Accounts and Explanation	Debit $	Credit $
2 July 2018	Equity investment	$54,600
	Cash		$54,600
21 Aug 2018	Cash	$1,680
	Dividend revenue		$1,680
16 Sep 2018	Cash	$57,540
	Equity investment		$54,600
	Gain on disposal		$2,940
1 Oct 2018	Trading debt investment	$40,000
	Cash		$40,000
31 Dec 2018	Cash	$600
	Interest revenue		$600
31 Dec 2018	Fair value adjustment – trading debt	$4,000
	Unrealized holding gains		$4,000
		$158,420	$158,420