Team A Week 5 Problems
PE-2, page 862
In January 2012, the administration of Sarah Company determined that it has enough
money to buy transient investments in debt and stock securities. In the course of the year,
these are the transactions that happened.
Feb. 1 Purchased 1,200 shares of NJF common stock for $50,600 plus brokerage
fees of $1,000.
Mar. 1 Purchased 500 shares of SEK common stock for $18,000 plus brokerage
fees of $500.
Apr. 1 Purchased 70 $1,000, 8% CRT bonds for $70,000 plus $1,200 brokerage
fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.80 per share on the NJF common stock.
Aug. 1 Sold 200 shares of NJF common stock at $42 per share less brokerage
fees of $350.
Sept. 1 Received $2 per share cash dividend on the SEK common stock.
Oct. 1 Received the semiannual interest on the CRT bonds.
Oct. 1 Sold the CRT bonds for $77,000 less $1,300 brokerage fees.
The fair values of the NJK and SEK common stocks were at $39 and $30 in every
corresponding share at December 31.
Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock
Investments. (Use the T account form.)
(b) Prepare the adjusting entry at December 31, 2012, to report the investments at fair
value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2012.
(d) Identify the income statement accounts and give the statement classification of each
account.
GENERAL
JOURNAL
Date Account Titles and Explanation Debit Credit
Feb 1 Stock Investments 51600
Cash 51600

(To record purchase of 1200 shares
of NJF common stock)
Mar 1 Stock Investments 18500
Cash 18500
(To record purchase of 500 shares
of SEK common stock)
Apr 1 Debt Investments 71200
Cash 71200
(To record purchase of 70 CRT Bonds)
Jul 1 Cash (1200 x 0.80) 960
Dividend Revenue 960
(to record receipt of a cash dividend NJF)
Aug 1 Cash 8050
Loss on Sale of Investments 550
Stock Investments 8600
(To record sale of 200 shares of NJF
common stock)
Sept 1 Cash (500 x 2.00) 1000
Dividend Revenue 1000
(to record receipt of a cash dividend)
Oct 1 Cash 2800
Interest Revenue 2800
(To record receipt of interest on CRT bonds)
Oct 1 Cash 75700
Debt investment 71200
Gain on sale of investments 4500
(To record sale of CRT bonds)
Dec 31 Unrealized Loss - Income 7500
Market
Adjustment Trading 7500
(to record unrealized loss on trading securities

CASH Stock Investments Debt Investment
960 51600 51600 8600 71200 71200
8050 18500 18500
1000 71200
2800
75700
Dividend Revenue Loss on Sale of Investments Interest Revenue
960 550 2800
1000
Gain on Sale of Investments Unrealized Loss - Income Market Adjustment Trading
4500 7500 7500Sarah Company
Balance Sheet
(partial)
31-Dec-12
Current
Assets
Short-term investments, at fair value 54000
Other Revenue & Gains
• Dividend Revenue
• Interest Revenue
• Gain on Sale of Investments
Other Expenses & Losses
• Loss on Sale of Investments
• Unrealized Loss

E7-5
In the Reyes Company, checks are currently not prenumbered for the purchasing client and
the treasurer are both permitted to provide checks. Every benefactor has authorization to
withheld checks stored in an open vault or cabinet. The purchasing agents pays all the
charges involving the merchandise bought for resale. Before the payment, the purchasing
agent confirms that the merchandise have been acquired and validates the precise
calculation of the vendors’ receipt. After the transaction, the receipt is kept by the vendor
and the purchasing agent lists the payment in the cash disbursements journal. The
treasurer pays the remaining charges after the verification by the administrators. After the
payment, the treasurer seals all transactions with “paid”, sorts them according to payment
date and lists the check in the cash disbursements journal. The Reyes Company retains one
checking account that is reconciled through the treasurer.
Instructions
(a) List the weaknesses in internal control over cash disbursements.
1. No prenumbered checks.
2. Checks are kept in unlocked cabinet
3. No segregation of duties
(b) Identify improvements for correcting these weaknesses.
1. Order prenumbered checks.
2. Lock disbursements and keep in separate area from others
3. Segregate approvers, buyers, signers, treasury, account reconcilers.
4. Filing improvements
5. More than one signer needed for checks.

Team A Week 5 Problems

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