American Surety and Fidelity buys and sells securities expecting to earn profits on short-term differences in price. For the first 11 months of 2021, gains from selling trading securities totaled $8 million, losses from selling trading securities were $11 million, and the company had earned $5 million in interest revenue. The following selected transactions relate to American's investments in trading securities and equity securities during December 2021, and the first week of 2022. The company's fiscal year ends on December 31. No trading securities or equity investments were held by American on December 1, 2021. Assume that the bonds are purchased at face value. 2018
Dec.
12 Purchased FF&G Corporation bonds for $12 million.
13 Purchased 2 million Ferry Intercommunications common shares for $22 million.
15 Sold the FF&G Corporation bonds for $12.1 million.
22 Purchased U. S. Treasury bills for $56 million and Treasury bonds for $65 million.
23 Sold half the Ferry Intercommunications common shares for $10 million.
26 Sold the U. S. Treasury bills for $57 million.
27 Sold the Treasury bonds for $63 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 $10 per share.

2019
Jan.
2 Sold the remaining Ferry Intercommunications common shares for $10.2 million.
5 Purchased Warehouse Designs Corporation bonds for $34 million.

Required:
a. Prepare the appropriate journal entry for each transaction or event during 2020.
b. Indicate any amounts that American would report in its 2020 balance sheet and income statement as a result of these investments.
c. Prepare the appropriate journal entry for each transaction or event during 2021.

1. Amount in milions

Dec 12,2020

Dr Investment in FF&G Corporation bonds12

Cr Cash 12

Dec 13,2020

Dr Investment in Ferry Intercommunications22

Cr Cash 22

Dec 15,2020

Dr Cash12.1

Cr Gain on sale of investment 0.1

Cr Investment in FF&G Corporation bonds 12

Dec 22,2020

Dr Investment in U.S. treasury bill56

Dr Investment in U.S. treasury bonds65

Cr Cash 121

Dec 23,2020

Dr Cash10

Dr Loss on sale of investment1

Cr Investment in Ferry Intercommunications common shares 11

Dec 26,2020

Dr Cash57

Cr Gain on sale of investment 1

Cr Investment in U.S. treasury bill 56

Dec 27,2020

Dr Cash63

Dr Loss on sale of investment2

Cr Investment in U.S. treasury bonds 65

Dec 28,2020

Dr Cash0.2

Cr Investment Revenue 0.2

Dec 31,2020

Dr Net unrealized holding gains and losses—I/S1

Cr Fair value adjustment (Ferry Intercommunication) 1

Dec 31,2020

Dr Income summary0.7

Dr Investment revenue 5.2

Dr Gain on sale of investment9.1

Cr Loss on sale of investment 14

Cr Net unrealized holding gains and losses—I/S 1

2. BALANCE SHEET

Total $10

INCOME STATEMENT

Total Other Revenue $-1.7

3. 1/1/21

Dr Cash10.2

Dr Loss on sale of investment0.8

Cr Investment in Ferry Intercommunications 11

12/1/21

Dr Fair value adjustment (account balance)1

Cr Net unrealized holding gains and losses—I/S 1

5/1/21

Dr Investment in Warehouse Designs bonds34

Cr Cash 34

Explanation:.

1. Preparation of the appropriate journal entry for each transaction or event during 2020.

Amount in milions

Dec 12,2020

Dr Investment in FF&G Corporation bonds12

Cr Cash 12

Dec 13,2020

Dr Investment in Ferry Intercommunications22

Cr Cash 22

Dec 15,2020

Dr Cash12.1

Cr Gain on sale of investment 0.1

(12.1-12)

Cr Investment in FF&G Corporation bonds 12

Dec 22,2020

Dr Investment in U.S. treasury bill56

Dr Investment in U.S. treasury bonds65

Cr Cash 121

(56+65)

Dec 23,2020

Dr Cash10

Dr Loss on sale of investment1

(11+10)

Cr Investment in Ferry Intercommunications common shares (1/2 x $22 million)11

Dec 26,2020

Dr Cash57

Cr Gain on sale of investment 1

(57-56)

Cr Investment in U.S. treasury bill 56

Dec 27,2020

Dr Cash63

Dr Loss on sale of investment2

(65-63)

Cr Investment in U.S. treasury bonds 65

Dec 28,2020

Dr Cash0.2

Cr Investment Revenue 0.2

Dec 31,2020

Dr Net unrealized holding gains and losses—I/S1

Cr Fair value adjustment (Ferry Intercommunication) 1

($10 million – [$22million × 1/2])

Dec 31,2020

Dr Income summary0.7

Dr Investment revenue ($5 + 0.2 million)5.2

Dr Gain on sale of investment ($8 + 0.1 + 1 million)9.1

Cr Loss on sale of investment (11 + 1 +2) 14

Cr Net unrealized holding gains and losses—I/S 1

2. Calculation toIndicate any amounts that American would report in its 2021 balance sheet and income statement as a result of these investments.

BALANCE SHEET

Current Assets

Trading Securities ($22/2)11

Less: Fair value adjustment-1

Total$10

($11-$1)

INCOME STATEMENT

Other Revenue (Expenses)

Investment revenue 5.2

Gain (Loss ) on investment):

Gain on sale of investment1.1

Gain on sale of investment 8

Loss on sale of investment (11 + 1+2)-4

Loss on sale of investment -11

Net unrealized holding gains and losses—I/S -1

Net Loss on investments -6.9

Total Other Revenue (Expenses) -1.7

3. Preparation of the appropriate journal entry for each transaction or event during 2021.

Amount in millions

1/1/21

Dr Cash10.2

Dr Loss on sale of investment0.8

Cr Investment in Ferry Intercommunications (1/2 x $30 million) 11

12/1/21

Dr Fair value adjustment (account balance)1

Cr Net unrealized holding gains and losses—I/S 1

5/1/21

Dr Investment in Warehouse Designs bonds34

Cr Cash 34