Mead Inc. began operations in Year 1. Following is a series of transactions and events involving its long-term debt investments in available-for-sale securities.
Year 1
Jan. 20 Purchased Johnson & Johnson bonds for $20,500.
Feb. 9 Purchased Sony notes for $55,440.
June 12 Purchased Mattel bonds for $40,500.
Dec. 31 Fair values for debt in the portfolio are Johnson & Johnson, $21,500; Sony, $52,500; and Mattel, $46,350.
Year 2
Apr. 15 Sold all of the Johnson & Johnson bonds for $23,500.
July 5 Sold all of the Mattel bonds for $35,850.
July 22 Purchased Sara Lee notes for $13,500.
Aug. 19 Purchased Kodak bonds for $15,300.
Dec. 31 Fair values for debt in the portfolio are Kodak, $17,325; Sara Lee, $12,000; and Sony, $60,000.
Year 3
Feb. 27 Purchased Microsoft bonds for $160,800.
June 21 Sold all of the Sony notes for $57,600.
June 30 Purchased Black & Decker bonds for $50,400.
Aug. 3 Sold all of the Sara Lee notes for $9,750.
Nov. 1 Sold all of the Kodak bonds for $20,475.
Dec. 31 Fair values for debt in the portfolio are Black & Decker, $54,600, and Microsoft, $158,600.
Required
1. Prepare journal entries to record these transactions and the year-end fair value adjustments to the portfolio of long-term available-for-sale debt securities.
2. Prepare a table that summarizes the
(a) Total cost,
(b) Total fair value adjustment,
(c) Total fair value of the portfolio of long-term available-for-sale debt securities at each year-end.
3. Prepare a table that summarizes
(a) The realized gains and losses and
(b) The unrealized gains or losses for the portfolio of long-term available-for-sale debt securities at each year-end.
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