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

Prepare T-accounts for the investment assets, and show how to report the investments on Jetway’s balance sheet at December 31, 2018.

Step by step solution

01

Definition of Short-Term Investment

The investment purchased by the investor for a period that does not exceed one year is known as a short-term investment. It is converted into cash within one year.

02

T-Accounts for the investment Assets

T-Accounts for the investment Assets

Equity Investment
Date	Particulars	Amt $	Date	Particular	Amt $
2 July 2018	Cash	$50,400	16 Sep 2018	Cash	$50,400
		$50,400			$50,400

Trading Debt investment
Date	Particulars	Amt $	Date	Particular	Amt $
1 Oct 2018	Cash	$20,000

03

Representing on Balance Sheet

Particular	Amount $
Assets
Current assets
Trading debt investment	$20,000

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