Hurst Company Case Study

P 16-3A
On December 31, 2008, Ramey Associates owned the following securities, held as a long-term investment. The securities are not held for influence or control of the investee. Common Stock | Shares | Cost | Hurst Co. | 2000 | $60000 | Pine Co. | 5000 | $45000 | Scott Co. | 1500 | $30000 |
On December 31, 2008, the total fair value of the securities was equal to its cost. In 2009, the following transactions occurred.
July 1 Received $1 per share semiannual cash dividend on Pine Co. common stock.
Aug 1 Received $0.50 per share cash dividend on Hurst Co. common stock.
Sept 1 Sold 1,500 shares of Pine Co. common stock for cash at $8 per share, less brokerage fees of $300.
Oct 1 Sold 800 shares of Hurst Co. common stock for cash at
$33 per share, less brokerage fees of $500.
Nov 1 Received $1 per share cash dividend on Scott Co. common stock.
Dec 15 Received $0.50 per share dividend on Hurst Co. common stock.
Dec 31 Received $1 per share semiannual cash dividend on Pine Co. common stock.
At December 31, the fair values per share of common stocks were: Hurst Co. $32, Pine Co. $8, and Scott Co. $18.
Instructions
a. Journalized the 2009 transactions and post to the account Stock Investments. (use the T-account form.) b. Prepare the adjusting entry at December 31, 2009, to show the securities at fair value. The stock should be classified as available for sale securities. c. Show the balance sheet presentation of the investments at December 31, 2009. At this date, Ramey Associates has common stock $1,500,000 and retained earnings $1000,000.

Answer:
a.General Journal Date | Transactions | Debit | Credit | June 1, 2009 | Cash | | $ 5,000 | | | | Divedend revenue(5000shx$1) | | $ 5,000 | August 1, 2009 | Cash | | $ 1,000 | | | | Divedend revenue(2000shx$0.5) | | $ 1,000 | September 1, 2009 | Cash | | | | | Loss on sale of stock investment | $ 11,700 | | | | Stock investment_Pine Co.
| $ 1,800 | | | | (1500/5000x$45000) | | $ 13,500 | October 1, 2009 | Cash | | $ 25,900 | | | | Gain on sale of stock investment | | $ 1,900 | | | Stock investment_Hurst Co. | | $ 24,000 | | | (800/2000x$60000) | | | November 1, 2009 | Cash | | $ 1,500 | | | | Dividend revenue(1500shx$1) | | $ 1,500 | December 15, 2009 | Cash | | $ 600 | | | | Dividend revenue(1200shx$0.5) | | $ 600 | December 31, 2009 | Cash | | $ 3,500 | | | | Dividend revenue(3500shx$1) | | $ 3,500 |

Stock investment_Hurst Co. | 31/12 $60000 | 1/12 $24000 | | | $36,000 | | Stock investment_Pine Co. | 31/12 $45000 | 1/9 $13500
| | | $31,500 | | Stock investment_Scott Co. | 31/12 $30000 | | | | $30,000 | |

b. Common Stock | Cost | Fair Value | Unrealized gain (loss) | Hurst Co. | $ 36,000 | $ 38,400 | $ 2,400 | Pine Co. | $ 31,500 | $ 28,000 | $ (3,500) | Scott Co. | $ 30,000 | $ 27,000 | $ (3,000) | | $ 97,500 | $ 93,400 | $ (4,100) | Adjusting Entry Date | Transactions | Debit | Credit | December 31, 2009 | Unrealized loss_Equity | 4100 | | | | Market Adjustment_Available for sale | | 4100 |

c. Ramey Associates Balance sheet (partial)
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December 31, 2009 Assets Current assets Cash $49,200 Long term assets Stock investment at fair value $93,400 Stock Holder’s Equity Paid in Capital Common Stock $1,500,000 Retained Earnings $1,000,000 Total Paid in Capital and Retained Earnings $2,500,000 Less: Unrealized loss_Equity ($4,100) Total Stock Holder’s Equity $2,495,900