Holly Company invests its excess cash in marketable securities. At the beginning of 2016, it had the following portfolio of investments in available-for-sale securities:
| Security |
Cost |
12/31/15 Fair Value |
| 400 shares of Igor Company common stock |
$8,400 |
$9,400 |
| 700 shares of Ozone Company common stock |
23,100 |
21,700 |
| Totals |
$31,500 |
$31,100 |
During 2016, the following transactions occurred:
| Mar. 31 |
Purchased Union Company 8% bonds with a face value of $10,000 for $10,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31. |
| May 17 |
Sold 200 shares of Ozone Company common stock for $30 per share. |
| June 30 |
Received the semiannual interest on the Union Company bonds. |
| Oct. 12 |
Sold 100 shares of Igor Company common stock for $24 per share. |
| Dec. 31 |
Received the semiannual interest on the Union Company bonds and dividends of $1 per share and $1.50 per share on the Igor and Ozone Company common stock, respectively. |
The December 31 closing market prices were as follows: Igor Company common stock, $25 per share; Ozone Company common stock, $31 per share; Union Company 8% bonds, 101.
Required:
| 1. |
Prepare journal entries to record the preceding information. |
| 2. |
Show what is reported on Holly’s 2016 income statement. |
| 3. |
Assuming the investment in Igor Company stock is considered to be a current asset and the remaining investments are noncurrent, show how all the items are reported on Holly’s December 31, 2016, balance sheet. |
| 4. |
If GAAP required that unrealized holding gains and losses on available-for-sale securities be included in income, how much would Holly recognize in 2016? |
