Attached is the trial balance of James Appliance Company, for the year ended December 31, 2012. It isn’t the final trial balance, but it does contain all the adjustments
except those relevant to the investments held by the company. JAMES’ POLICY IS TO ACCRUE INCOME GENERATED FROM CASH DIVIDENDS ON THE DECLARATION
DATE.
A.No entries had been made to the Investment account during 2012. The detail to support the balance on your trial balance follows:
CostFV (per share) as of 12/31/2012
100 shares of $4 ABD Corp. Preferred Stock$4,45043
300 shares of Banana Tabulators, Inc. Common9,45024
Five $1000 bonds of HAL Corporation (8% coupon rate, interest5,00096
payable 6/1 and 12/1, maturity 12/1/2020)
100 shares Consolidated Bell Common7,40070
1,000 shares of Red & Black Transportation Corp. Common Stock25,00023.5
Total$51,300
The ABD preferred stock was purchased for cash income. This stock is readily marketable, but there is no intention of selling this stock any time in the near future.
ABD declared the full stated dividend on December 15, 2012 and it is due to be paid January 16, 2013. James Corp. owns 40% of ABD’s preferred stock, and ABD’s
net income for the year was $24,000
The Banana Tabulator stock was originally purchased 3 years ago with the expectation that it would grow sharply in value; the recent fall in the fair value of the stock is
due, according to James’ stock advisor, on a temporary depression in the tabulator market so its value is expected to eventually recover. It is now the intention of the
owner to hold on to this security for probably two or three more years. No cash dividends were declared or paid this year by Banana Tabulator.
The HAL bonds and the Consolidated Bell common stock were both purchased in 2010 with excess cash and to generate income. If additional cash is needed, it is
likely that either security could be sold in the next year.
Interest was paid from the HAL bonds on schedule.
Consolidated Bell declared a stock dividend and distributed 20 shares of common stock to James on September 15, 2012, when the fair market value of the common
stock was at 72. On October 2, the corporation sold the 20 shares of stock from the stock dividend at 71.50 and total commissions from the sale were $30.
Consolidated Bell declared a cash dividend of $6.00 per share on December 5, 2012, which is payable January 7, 2013.
Red & Black Transportation, Inc. provides the majority of the transportation for James’ inventory and the owner sits on R&B’s Board of Directors. R&B has currently
issued and outstanding 3,000 shares of voting common stock and James paid book value for the stock. This year R&B reported $42,000 in net income. On November
10 it declared a total of $12,000 in cash dividends to all its shareholders. Date of record was November 30 and date of payment was December 9, 2012. There is no
intention on the part of management to sell any of this stock in the foreseeable future.
B.These new securities were purchased in 2012:
1On September 1, 2012, James purchased 1,600 shares of Fermi Wholesale Television Incorporated, which is one of James’ major suppliers. At the time of
the purchase, Fermi had issued and outstanding 6,400 shares of voting common stock. The business paid $25.25 per share. Total commissions on the
purchase were $200. Fermi’s total net loss for 2012 was $27,000, which was incurred evenly throughout the year. Fermi declared no dividends during 2012
and the fair value of the stock was 24 by the end of the year. There is no intention to sell any Fermi common stock any time soon.
2On June 1, 2012, the company purchased five $1,000 bonds issued by the City School District. These bonds were purchased at 105 plus purchased interest.
$100 in commissions and taxes were paid on the trade. The contract rate on these bonds is 6% with interest payable on 4/1 and 10/1; these bonds mature
4/1/2017. It is the intention of management to hold these bonds until they mature. On December 31, 2012, these bonds had a fair value of 104. James uses Straight-Line (SL) method to amortize premiums and discounts on its debt investments when appropriate.
3On October 15, 2012, 100 shares of Granny Smith common stock were purchased at 35; commissions and taxes paid on the transaction were $125. This stock
trades OTC and is regularly reported on NASDAQ. Management plans to sell its holding in Granny Smith to take advantage of short-term price increases that
management believes will occur in the first couple months of 2013. On November 30, when the stock was trading at 50, it split 2:1. James sold 50 shares of the
shares it received from the split at 24.25 on December 28, 2012. The fees to transact the sale were $75. A cash dividend of $1 a share was declared December
20, 2012, with a date of record of January 12, 2013, and a date of distribution of January 23, 2013. On December 31, 2012, the fair value of Granny Smith was
26
C.The prepaid expenses include a $3,000 annual premium paid for a whole-life insurance policy on the life of the owner of the corporation with the
corporation as beneficiary. The policy was dated March 1, 2012, and, according to the information from the insurance company, as of December 31, 2012,
the investment portion of the $3,000 premium was $1,000. This is the first year the insurance policy has been in effect.