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)


Related 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...
1.If a company purchases its long term investments in available for sale debt securities this period...
1.If a company purchases its long term investments in available for sale debt securities this period and their fair value is below cost at the balance sheet date, what entry is required to recognize the unrealized loss? 2. On a balance sheet, what valuation must be reported for debt securities classified as available for sale? 3. Under what circumstances are long-term investments in debt securities reported at cost and adjusted for amortization of any difference between cost and maturity value?...
A company bought the available for sale investments during 2017 (no investments as of 12/31/16) -...
A company bought the available for sale investments during 2017 (no investments as of 12/31/16) - they bought 200 shares of apple stock for $40,000 on 2/1/17 - they bought 100 treasury bonds at $1,000 par each with an 4% interest rate at 4/2/2017 (semi annual on 4/1 and 10/1) - $50,000 of company B 9% bonds due 3/1/37, interest payable on 3/1. our company paid 50,000 plus accrued interest for these bonds on 7/1/17 Required: 1- prepare journal entries...
At the beginning of 2016, Ace Company had the following portfolio of investments in available-for-sale securities...
At the beginning of 2016, Ace Company had the following portfolio of investments in available-for-sale securities (common stock): 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...
The following information relates to the HTM debt securities investments of Kiran Company during 2018: a.  ...
The following information relates to the HTM debt securities investments of Kiran Company during 2018: a.   February 1: The company purchased 10% bonds of Tempe Co. having a par value of $150,000 at 97 plus accrued interest. Interest is payable on March 1 and September 1. Maturity date is 9/1/19 b.   March 1: Semiannual interest is received and amortization is updated. c.   June 1: 9% bonds of Flagstaff were purchased. The bonds had a par value of $80,000 and were...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT