Rose Company had no short-term investments prior to year 2015. It had the following transactions involving short-term investments in available-for-sale securities during 2015.
Apr. 16 Purchased 4,000 shares of Gem Co. stock at $24.25 per share plus a $180 brokerage fee.
May 1 Paid $100,000 to buy 91-day U. S. Treasury bills (debt securities): $100,000 principal amount, 6% interest, securities dated May 1.
July 7 Purchased 2,000 shares of PepsiCo stock at $49.25 per share plus a $175 brokerage fee.
20 Purchased 1,000 shares of Xerox stock at $16.75 per share plus a $205 brokerage fee.
Aug. 3 Received a check for principal and accrued interest on the U. S. Treasury bills that matured on July 31.
15 Received an $0.85 per share cash dividend on the Gem Co. stock.
28 Sold 2,000 shares of Gem Co. stock at $30 per share less a $225 brokerage fee.
Oct. 1 Received a $1.90 per share cash dividend on the PepsiCo shares.
Dec. 15 Received a $1.05 per share cash dividend on the remaining Gem Co. shares.
31 Received a $1.30 per share cash dividend on the PepsiCo shares.
Required
1. Prepare journal entries to record the preceding transactions and events.
2. Prepare a table to compare the year-end cost and fair values of Rose’s short-term investments in available-for-sale securities. The year-end fair values per share are: Gem Co., $26.50; PepsiCo, $46.50; and Xerox, $13.75.
3. Prepare an adjusting entry, if necessary, to record the year-end fair value adjustment for the portfolio of short-term investments in available-for-sale securities.
Analysis Component
4. Explain the balance sheet presentation of the fair value adjustment for Rose’s short-term investments.
5. How do these short-term investments affect Rose’s (a) income statement for year 2015 and (b) the equity section of its balance sheet at year-end 2015?
Answers: 3
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