Question

P15-19A 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
1. Classify each of the investments made during 2018. (Assume the equity invest- ments represent less than 20% of ownership of outstanding voting stock.)
2. Journalize the 2018 transactions. Explanations are not required.
3. Prepare T-accounts for the investment assets, and show how to report the invest- ments on Jetway's balance sheet at December 31, 2018.
4. Where is the unrealized holding gain or loss associated with the trading debt investment reported?

Answer 1

Jetway Corporation's investment in Pogo Inc. is a short-term trading security, and the Violet bond is a short-term trading debt investment. The unrealized holding gain or loss for the bond is reported on the income statement.

Step-by-step explanation:

Classifying Investments and Journalizing Transactions

The investment in Pogo Inc. common stock is classified as a short-term investment since Jetway Corporation plans to sell it within three months. This is typically classified as a trading security on the balance sheet. The investment in the Violet bond is also classified as a trading and short-term debt investment because Jetway categorizes it as such and adjusts the bond to its market value at the end of the year.

Journal Entries and T-Accounts

For journalizing the transactions, the initial purchase of Pogo stock, the receipt of dividends, and the sale of the stock would all be accounted for with their respective debits and credits in the accounting records. When it comes to the Violet bond, the purchase, interest receipt, and market value adjustment are also recorded with appropriate journal entries.

Concerning T-accounts, these would reflect the transactions made and the adjustments to market value, showcasing the changes in the investment assets account over the year.

Unrealized Gains and Losses

The unrealized holding gain or loss associated with the trading debt investment is reported in the income statement as it relates to trading securities. This reflects the temporary changes in value for investments that are not influenced by significant ownership or strategic investments.