During 2011, Rooster Company purchased 5,000 shares of Hen Company common stock for $18 per share and 3,200 shares of Egg Company common stock for $21 per share. These investments are intended to be held as ready sources of cash and are classified as trading securities.
Also in 2011, Rooster purchased 6,400 shares of Chicken Company common stock for $27 per share and $80,000 of treasury notes at 103. These securities are classified as available for sale.
During 2011, Rooster received the following interest and dividend payments on its investments:
Hen Company $2.50 per share dividend
Egg Company $1.25 per share dividend
Chicken Company $1.00 per share dividend
Treasury notes8% annual interest earned for 6 months
Fair values of the securities at December 31, 2011, were as follows:
Hen Company $21 per share
Egg Company $16 per share
Chicken Company $24 per share
Treasury notes 104
On March 23, 2012, the 3,200 shares of Egg common stock were sold for $16 per share. On June 30, 2012, the treasury notes were sold at 102 plus accrued interest.
Fair values of remaining securities at December 31, 2012, were as follows:
Hen Company$20 per share
Chicken Company $30 per share
Instructions:
1. Prepare all 2011 and 2012 journal entries related to these securities.
2. Describe how the following items would be treated on Rooster Company’s statement of cash flows for the year ended December 31, 2012. Rooster uses the indirect method of reporting cash flows from operating activities. In all cases, assume that trading securities were acquired for operating purposes.
(a) Proceeds from the sale of Egg shares and any realized gain or loss from the sale.
(b) Proceeds from the sale of the treasury securities and any realized gain or loss from the sale.
(c) Any unrealized gain or loss on the remaining securities.