In: Accounting
The following selected transactions relate to investment
activities of Ornamental Insulation Corporation during 2021. The
company buys debt securities, intending to profit from short-term
differences in price and maintaining them in an active trading
portfolio. Ornamental’s fiscal year ends on December 31. No
investments were held by Ornamental on December 31, 2020.
Mar. | 31 | Acquired 8% Distribution Transformers Corporation bonds costing $590,000 at face value. | ||
Sep. | 1 | Acquired $1,470,000 of American Instruments' 10% bonds at face value. | ||
Sep. | 30 | Received semiannual interest payment on the Distribution Transformers bonds. | ||
Oct. | 2 | Sold the Distribution Transformers bonds for $655,000. | ||
Nov. | 1 | Purchased $2,350,000 of M&D Corporation 6% bonds at face value. | ||
Dec. | 31 | Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are |
American Instruments bonds | $ | 1,429,000 | |
M&D Corporation bonds | $ | 2,429,000 | |
(Hint: Interest must be accrued.)
Required:
1. Prepare the appropriate journal entry for each
transaction or event during 2021, as well as any adjusting entries
necessary at year end.
2. Indicate any amounts that Ornamental Insulation
would report in its 2021 income statement, 2021 statement of
comprehensive income, and 12/31/2021 balance sheet as a result of
these investments. Include totals for net income, comprehensive
income, and retained earnings as a result of these investments.
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Part 1 | |||||||
No | Date | General Journal | Debit | Credit | |||
1 | Mar 31 | Investment in Distribution Transformers Bond | $ 590,000 | ||||
Cash | $ 590,000 | ||||||
(To record investment in bonds) | |||||||
2 | Sep 1 | Investment in American Instruments Bond | $ 1,470,000 | ||||
Cash | $ 1,470,000 | ||||||
(To record investment in bonds) | |||||||
3 | Sep 30 | Cash | $ 23,600 | ||||
Interest Revenue ($590,000*8%*6/12) | $ 23,600 | ||||||
(To record interest received from bonds) | |||||||
4 | Oct 2 | Cash | $ 655,000 | ||||
Gain on sale of investment | $ 65,000 | ||||||
Investment in Distribution Transformers Bond | $ 590,000 | ||||||
(To record gain in sale of bonds) | |||||||
5 | Nov 1 | Investment in M&D Corporation Bond | $ 2,350,000 | ||||
Cash | $ 2,350,000 | ||||||
(To record investment in bonds) | |||||||
6 | Dec 31 | Interest Receivable | $ 49,000 | ||||
Interest Revenue ($1,470,000*10%*4/12) | $ 49,000 | ||||||
(To record interest accured on American Bonds) | |||||||
Dec 31 | Interest Receivable | $ 23,500 | |||||
Interest Revenue ($2,350,000*6%*2/12) | $ 23,500 | ||||||
(To record interest accured on M&D Corporation) | |||||||
Dec 31 | Fair value adjustment | $ 38,000 | |||||
Net unrealized Holding gain/Loss (OCI) | $ 38,000 | ||||||
(To record fair value adjustments) | |||||||
Accumulated Unrealized | |||||||
Available for Sale Securities | Cost | Fair Value | Gain/(Losses) | ||||
American Instruments | $ 1,470,000 | $ 1,429,000 | $ -41,000 | ||||
M&D Corporation | $ 2,350,000 | $ 2,429,000 | $ 79,000 | ||||
Total | $ 3,820,000 | $ 3,858,000 | $ 38,000 | ||||
Part 2 | Income Statement: | ||||||
Interest Revenue ($23,500+$49,000+$23,500) | $ 96,100 | ||||||
Gain on sale of Investment | $ 65,000 | ||||||
Statement of Comprehensive Income: | |||||||
Net unrealized Holding gain/Loss on investment | $ 38,000 | ||||||
Balance Sheet: | |||||||
Assets | |||||||
Current assets: | |||||||
Interest revenue Receivable ($49,000+$23,500) | $ 72,500 | ||||||
Securities available for sale | $ 3,820,000 | ||||||
Add: Fair value adjustment | $ 38,000 | $ 3,858,000 | |||||
Shareholder's Equity | |||||||
Accumulated Other comprehensive income | |||||||
Net unrealized Holding gain/Loss on investment | $ 38,000 |