Question: Day Systems had no short-term investments prior to 2011. It had the following transactions involving short-term investments in available-for-sale securities during 2011. Feb. 6 Purchased 1,700 shares of Nokia stock at $41.25 per share plus a $1,500 brokerage fee. 15 Paid $10,000 to buy six-month U.S. Treasury bills (debt securities): $10,000 principal amount, 6% interest, securities dated February 15. Apr. 7 Purchased 600 shares of Dell Co. stock at $39.50 per share plus a $627 brokerage fee. June 2 Purchased 1,250 shares of Merck stock at $72.50 per share plus a $1,945 brokerage fee. 30 Received a $0.19 per share cash dividend on the Nokia shares. Aug. 11 Sold 425 shares of Nokia stock at $46 per share less a $525 brokerage fee. 16 Received a check for principal and accrued interest on the U.S. Treasury bills purchased February 15. 24 Received a $0.10 per share cash dividend on the Dell shares. Nov. 9 Received a $0.20 per share cash dividend on the remaining Nokia shares. Dec. 18 Received a $0.15 per share cash dividend on the Dell 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 the short-term investments in available-for-sale securities. The year-end fair values per share are: Nokia, $40.25; Dell, $41; and Merck, $59.
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. Analysis Component
4. Explain the balance sheet presentation of the fair value adjustment to Day's short-term investments.
5. How do these short-term investments affect (a) its income statement for year 2011 and (b) the equity section of its balance sheet at the 2011 year-end?