Rose Company had no short-term investments prior to this year. It had the following transactions this year involving short-term stock investments with insignificant influence. Apr. 16 Purchased 6,000 shares of Gem Co. stock at $29.75 per share. July 7 Purchased 3,000 shares of PepsiCo stock at $49.00 per share. 20 Purchased 1,500 shares of Xerox stock at $18.00 per share. Aug. 15 Received a(n) $0.80 per share cash dividend on the Gem Co. stock. 28 Sold 3,000 shares of Gem Co. stock at $36.50 per share. Oct. 1 Received a $1.60 per share cash dividend on the PepsiCo shares. Dec. 15 Received a $0.95 per share cash dividend on the remaining Gem Co. shares. 31 Received a $1.40 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 and (b) the equity section of its balance sheet at year-end?