Perry Company had no short term investments prior to year 2011. It had the following transactions involving short term investments in available for sale securities during 2011.
Apr. 16 Purchased 8,000 shares of Gem Co. stock at $24.25 per share plus a $360 brokerage fee.
May 1 Paid $200,000 to buy 90 day U.S. Treasury bills (debt securities): $200,000 principal amount,
6% interest, securities dated May 1.
July 7 Purchased 4,000 shares of PepsiCo stock at $49.25 per share plus a $350 brokerage fee.
20 Purchased 2,000 shares of Xerox stock at $16.75 per share plus a $410 brokerage fee.
Aug. 3 Received a check for principal and accrued interest on the U.S. Treasury bills that matured on
July 29.
15 Received an $0.85 per share cash dividend on the Gem Co. stock.
28 Sold 4,000 shares of Gem Co. stock at $30 per share less a $450 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 Perry’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.
4. Explain the balance sheet presentation of the fair value adjustment for Perry’s short term investments.
5. How do these short term investments affect Perry’s (a) income statement for year 2011 and (b) the equity section of its balance sheet at year end 2011?