Question
In: Accounting
At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt...
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. |
Solutions
Expert Solution
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)
ekkarill92 answered 1 month agoRelated Solutions
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May
3
Purchased C debt securities at
their par value for $50,000.
July
1
Sold all of the A securities for
$25,000 plus interest of $1,000.
Dec.
31
Received interest of $7,600 on the
B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/18 Fair Value
A
$45,000
$56,000
B
68,000
65,000
Totals
$113,000
$121,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $56,000 plus interest of
$1,000.
Dec. 31
Received interest of $1,000 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
At the beginning of 2018, Ace Company had the following portfolio of investments in available-for-sale debt...
At the beginning of 2018, Ace Company had the following
portfolio of investments in available-for-sale debt securities (all
of which were acquired at par value):
Security
Cost
1/1/2018 Fair Value
A
$20,000
$25,000
B
30,000
29,000
Totals
$50,000
$54,000
During 2018, the following transactions occurred:
May 3
Purchased C debt securities at their par value for
$50,000.
July 1
Sold all of the A securities for $25,000 plus interest of
$1,000.
Dec. 31
Received interest of $7,600 on the B...
On January 1, Glide Company had the following portfolio of investments in available-for-sale debt securities: Original ...
On January 1, Glide Company had the following portfolio of
investments in available-for-sale debt securities:
Original
Fair
Value
Holding Gain
or
Sold prior to
Securities:
Cost
Jan
1st
Loss on Jan
1st
Dec 31st ?
ACE
$20,000
$24,000
$4,000
YES
CHA
40,000
-
-
-
-
NO
During the year the following transactions occurred:
May 1 à Purchased CHA debt securities at par value for
$40,000
July 1 à Sold all the ACE securities for...
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the unrealized loss?
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At the beginning of 2016, Ace Company had the following portfolio of investments in available-for-sale securities...
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Security
Cost
12/31/15 Fair Value
A
$19,000
$22,500
B
32,000
30,000
Totals
$51,000
$52,500
During 2016, the following transactions occurred:
May
3
Purchased C securities (common
stock) for $14,500.
July
16
Sold all of the A securities for
$22,500.
Dec.
31
Received dividends of $650 on the B
and C securities, for which the following information was
available:
Security
12/31/16 Fair Value...
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[The following information applies to the questions
displayed below.]
Stoll Co.'s long-term available-for-sale portfolio at the
start of this year consists of the following.
Available-for-Sale Securities
Cost
Fair Value
Company A bonds
$
533,600
$
490,000
Company B notes
159,230
152,000
Company C bonds
662,000
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