Classifying and accounting for debt and equity investments

Jetway Corporation generated excess cash and invested in securities as follows: 2018

Jul. 2 Purchased 4,200 shares of Pogo, Inc. common stock at \(12.00 per share. Jetway plans to sell the stock within three months when the company will need the cash for normal operations. Jetway does not have significant influence over Pogo.

Aug. 21 Received a cash dividend of \)0.80 per share on the Pogo stock investment.

Sep. 16 Sold the Pogo stock for \(13.40 per share.

Oct. 1 Purchased a Violet bond for \)20,000 at face value. Jetway classifies the investment as trading and short-term.

Dec. 31 Received a \(100 interest payment from Violet.

31 Adjusted the Violet bond to its market value of \)22,000.

Requirements

Journalize the 2018 transactions. Explanations are not required.

Step by step solution

01

Definition of Bonds

Bonds are securities issued to generate capital from a debt source of funds. These securities holders are provided with regular interest.

02

Journal Entry for 2018

Date	Accounts and Explanation	Debit $	Credit $
2 July 2018	Equity investment$\left(4,200\times \$12\right)$	$50,400
	Cash		$50,400
21 Aug 2018	Cash	$3,360
	Dividend revenue		$3,360
16 Sep 2018	Cash	$56,280
	Equity investment		$50,400
	Gain on sale of investment		$5,880
1 Oct 2018	Trading debt investment	$20,000
	Cash$\left(4,200\times \$0.80\right)$		$20,000
31 Dec 2018	Cash	$100
	Interest revenue		$100
31 Dec 2018	Fair value adjustment	$2,000
	Unrealized holding gains		$2,000
		$132,140	$132,140

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