In: Accounting
At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt securities:
Company |
Amortized Cost |
12/31/18 Fair Value |
Cumulative Change in Fair Value |
Morgan Company | $30,000 | $29,200 | $(800) |
Nance Company | 50,000 | 53,200 | 3,200 |
Totals | $80,000 | $82,400 | $2,400 |
During 2019, the following transactions occurred:
July 1 | Purchased Oscar Company debt securities with a par value of 100,000 for $98,000. The securities carry an annual interest rate of 10%, mature on July 1, 2024, and pay interest seminannually on July 1 and December 31. Terry uses the straight-line method to amortize any discounts or premiums. |
Oct. 11 | Sold all of the Morgan Company securities for $28,000 plus interest of $1,400. |
Dec. 31 | Received interest of $6,000 on the Nance Company and Oscar Company debt securities, and the following yearend total market values were available: Nance Company debt securities, $54,000; Oscar Company debt securities, $96,000. |
Required:
1. | Prepare journal entries to record the preceding information. |
2. | Show how the preceding items are reported on Terry’s December 31, 2019, balance sheet. Assume all investments are noncurrent. |
1. Journal Entries in the books of Terry company for the year ended 31.12.2019
July 1 10% Oscar company debt securities Dr. $100000
To Bank A/c $ 98000
To Discount on debt securities. $ 2000
(Being Oscar company debt securities purchased)
Oct 11 Bank A/c $ 29400
Loss on sale of debt securities. $ 2000
To Morgan company securities. $ 30000
To interest on securities. $ 1400
(Being sale of Morgan company securities at loss of $2000)
Oct 11 Profit & loss A/c Dr. $ 2000
To Loss on sale of debt securities. $ 2000
(Being Loss on sale of Morgan company securities transferred)
Dec 31 Bank A/c Dr. $ 6000
To interest on securities. $ 6000
(Being interest on securities of Nance company and Oscar company received)
Dec 31 Interest on securities $ 7400
To Profit & loss A/c. $ 7400
(Being interest on securities transferred to Profit & loss account)
Dec 31 Discount on debt securities Dr. $ 400
To Profit & loss A/c Dr. $ 400
(Being discount on securities amortized over the period of 5 years on straight line basis)
Schedule of Investments as on 31.12.2019
Company Amortized cost Change in Fair value. Cumulative Nance co. $ 50000. $54000. $4000
Oscar Co. $ 100000. $96000. ($4000)