P15-3     Available-for-Sale Securities Holly Company invests its excess cash in marketable securities. At the beginning of 2007 it had the following portfolio of investments in available-for-sale   securities:

Security Cost Fair Value 400 shares of I Company common stock $  8,400 $ 9,400 700 shares of O Company common stock   23,100   21,700 Totals $31,500 $31,100 During 2007, the following transactions occurred:       Â

12/31/06

 

 

 

 

 

 

Mar.	31	Purchased U Company 8% bonds with a face value of $10,000 for $10,000 plus accrued interest;   inter-
Â	Â	est is payable on the bonds each June 30 and December 31
May	17	Sold 200 shares of O Company common stock for $30 per share
June	30	Received the semiannual interest on the U Company bonds
Oct.	12	Sold 100 shares of I Company common stock for $24 per share
Dec.	31	Received the semiannual interest on the U Company bonds and dividends of $1 per share and $1.50
Â	Â	per share on the I and O Company common stock, respectively

The December 31 closing market prices were as follows: I Company common stock, $25 per share; O Company common stock, $31 per share; U Company 8% bonds, 101.

Required

1.      Prepare journal entries to record the preceding information.

2.      Show what is reported on the Holly Company’s 2007 income statement.

3.      Assuming the investment in I Company stock is considered to be a current asset and the remaining investments are non- current, show how all the items are reported on the December 31, 2007 balance sheet of the Holly Company.

4.      If GAAP required that unrealized holding gains and losses on available-for-sale securities be included in income, how much would Holly recognize in 2007?