Rose Company had no short term investments prior to year 2013. It had the following transactions involving short term investments in available for sale securities during 2013.
Apr. 16 Purchased 4,000 shares of Gem Co. stock at $24.25 per share plus a $180 brokerage fee.
May 1 Paid $ 100,000 to buy 90 day U. S. Treasury bills (debt securities): $ 100,000 principal amount, 6% interest, securities dated May 1.
July 7 Purchased 2,000 shares of PepsiCo stock at $ 49.25 per share plus a $ 175 brokerage fee.
20 Purchased 1,000 shares of Xerox stock at $ 16.75 per share plus a $ 205 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 2,000 shares of Gem Co. stock at $ 30 per share less a $ 225 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 Rose'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.
Analysis Component:
4. Explain the balance sheet presentation of the fair value adjustment for Rose's short term investments.
5. How do these short term investments affect Rose's?
(a) Income statement for year 2013
(b) The equity section of its balance sheet at year end 2013?