Colton’s Western Wear Corp. (CWW) is a publicly reportable enterprise. Its year end is December 31. During 20X4 it invested some of its excess cash in various debt and equity securities. Pertinent details follow:
• All dividend and interest payments were received on the scheduled payment dates.
•CWW only updates the book value of its investments at the time of the transactions and at year end.
•CWW elects to reclassify reserves (AOCI) to retained earnings immediately upon derecognition of investments in equity securities at FVOCI — elect.
January 1, 20X4
•Paid $2,600 to purchase 100 common shares of Zulu Inc. CWW elected to irrevocably classify the investment at FVOCI — elect.
February 1, 20X4
•Paid $11.65 per share to purchase 2,700 shares of PLZ Corp., a publicly traded company with over 1,000,000 shares outstanding.
July 1, 20X4
• Paid $262,443 to acquire $250,000 of General Company Inc. six-year, 7% bonds.
Interest is paid on June 30 and December 31 each year. CWW’s objective of its business model for this investment is to hold the financial asset for purpose of collecting contractual cash flows.
•Paid $96,490 to acquire $100,000 of Gidget Corp.’s four-year, 5% bonds. Interest is paid on June 30 and December 31 each year. CWW’s business model for this investment is to hold the investment with a view to profiting from a decline in the market rate of interest.
December 15, 20X4
• PLZ declared dividends of $1.00 per share, payable on January 5, 20X5.
• Zulu declared dividends of $0.50 per share, payable on December 31, 20X4.
December 31, 20X4
Investment in
Market value
PLZ Corp. shares
$29.85 per share
Zulu Inc. shares
$24.00 per share
Market rate of interest
General Company Inc.’s bonds
5.5%
Gidget Corp.’s bonds
4.8%
January 1, 20X5
• CWW reclassified its investment in General Company’s bonds to at FVPL.
• CWW reclassified its investment in Gidget’s bonds to amortized cost.
July 1, 20X5
CWW sold all of its investments. The net proceeds of each sale follow:
Investment in
Sales price
PLZ Corp. shares
$27.50 per share
Zulu Inc. shares
$27.00 per share
General Company Inc.’s bonds
$258,000
Gidget Corp.’s bonds
$106,000
Required:
Prepare all journal entries to reflect the purchase, income recognition, revaluation, reclassification, and derecognition of the investments detailed in the question. Provide a separate journal entry for each event, date it, include a brief description of the pertinent details, and provide supporting calculations. Clearly indicate the nature of the
investment in each journal entry (for example, Investment in Co. X — FVPL, FVOCI, or
FVOCI — elect, or at amortized cost).
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