Dean Westby Jr.

Assignment #1
Advanced Financial Accounting
September 1, 2022
Hen Corporation offers accounting and financial services. The company buys and sells securities
intending to earn profits on short-term differences in price. The following selected transactions
relate to Hen’s investment activities during the last quarter of 2019 and the first month of 2020.
The only securities held by Hen at October 1 were $45 million of 10% bonds of Chicken Inc.,
purchased on May 1 at face value. The company’s fiscal year ends on December 31.
2019
October 16 Purchased 3.5 million preferred shares of Gulf Company for $62 million as a
speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $2.5 million from Chicken Inc., bonds.
Nov 1 Purchased 10% bonds on Merry Enterprises at their $19.5 million face value, to be held
until they mature in 2021. Semiannual interest is payable April 30 and October 31.
1 Sold Chicken Inc. for $37.5 million because rising interest rates are expected to cause their fair
value to continue to fall.
Dec. 1 Purchased 12% bonds of Garage Corporation at their $55.5 million face value, to be held
until they mature in 2031. Semiannual interest is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $6.4 million as trading securities, hoping to earn profits on
short-term differences in prices.
21 Purchased 5 million common shares of GG Corporation for $50 million as trading securities,
hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $6.5 million.
29 Received cash dividends of $3.5 million from Gulf Company preferred shares.
31 Recorded any necessary adjusting entry (s) and closing entries relating to the investments.
The market price of the Gulf Company preferred stock was $19.5 per share and $10 per share for
the GG Corporation common. The fair values of the bond investments were $53.5 for Garage
Corporation and $17.5 million for Merry Enterprises.
2020
Jan. 7 Sold GG Corporation common shares for $41.8 million.
Required:
Prepare the appropriate journal entry for each transaction or event.
 Date Description DR ($) CR ($)
Oct 16, 2019 Investment in Equity Securities (preferred 62,000,000
shares of Gulf Company)
Cash 62,000,000

Oct 31, 2019 Cash 2,500,000

Interest Revenue 2,500,000

Nov 1, 2019 Investment in Merry Enterprises’ bonds 19,500,000

Cash 19,500,000

Nov 1, 2019 Cash 37,500,000

Loss on sale of investment (fair value 7,500,000
adjustment)
Investment in Chicken Inc. bonds 45,000,000

Dec 1, 2019 Investment in Garage Corporation bonds 55,000,000

Cash 55,000,000

Dec 20, 2019 Investment in U.S. Treasury bonds 6,400,000

Cash 6,400,000

Dec 21, 2019 Investment in GG Corporation common 50,000,000

shares
Cash 50,000,000

Dec 23, 2019 Cash 6,500,000

Investment in U.S.Treasury Bonds 6,400,000
Gain on sale of investment (fair value adj.) 100,000

Dec 29, 2019 Cash 3,500,000

Investment Revenue 3,500,000

Dec 31, 2019 Net unrealized holding gains and losses 3,125,000
Fair value adjustment (3.5M shares x ½ $19.5, 3,125,000
$62M X ½)
Gulf Company
= $19.5 x 3.5M/2 = $34,125,000
= $62M/2 = $31,000,000
= $34,125,000 - $31,000,000 = $3,125,000

Dec 31, 2019 Fair Value Adjustments (5M shares x ½ 10, 0

$50M X ½)
Net unrealized holding gains and losses 0
GG Corporation
= $10 x 5M/2 = $25,000,000
 =50M/2 = $25,000,000
$25,000,000 - $25,000,000 = 0

Garage Corporation
Dec 31, 2019 Net unrealized holding gains and losses 2,000,000
Fair Value Adjustments ($53.5M – $55.5M) 2,000,000

Merry Enterprises
Dec 31, 2019 Net unrealized holding gains and losses 2,000,000
Fair Value Adjustments ($53.5M – $55.5M) 2,000,000

Jan 7, 2020 Cash 41,800,000

Loss on sale of investment 8,200,000
Investment in GG Corporation common 50,000,000
shares