Question

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

Short answer

Cash debited by $270,000, gain on sale of securities credited by $55,000 and equity investment credited by $215,000. Equity investment is debited by $163,500 and cash credited by $163,500. Unrealized holding loss debited by $45,500 and fair value adjustment credited by $45,500.

Step-by-step solution

Definition of preference share

Preference shares are those shares which enjoy some additional rights over the equity shares. These rights are pre decided before the issuance of the preference shares.

Step 2:Journal entries for sale and purchase of securities

Date	Particulars	Debit	Credit
October 10, 2017	Cash	$270,000
	Gain on sale of securities		$55,000
	Equity Investment		$215,000
	(Being entry for the sale of common stock
November 2, 2017	Equity Investment	$163,500
	Cash		$163,500
	(Being entry for the purchase of securities)
December 31, 2017	Unrealized holding loss	$45,500
	Fair value adjustment		$45,500
	(Being entry for the fair value adjustment)