Question

In: Accounting

The following information pertains to Lynx Corporation’s portfolio of marketable securities for the years ended December...

The following information pertains to Lynx Corporation’s portfolio of marketable securities for the years ended December 31, Year 1, and December 31, Year 2:

Cost

Fair Value (12/31/Y1)

Activity Y2

Fair Value (12/31/Y2)

Held-to-Maturity Debt Securities

Bond A

90,000

92,000

Received 3,000 interest

93,500

Available-for-sale Debt Securities

Bond B

100,000

101,750

Sold at 103,000

102,100

Marketable Equity Securities

(lacks significant impact)

Stock C

75,000

68,000

73,000

Stock D

45,000

51,000

Sold at 49,500

53,500

Additional Notes:

Bond A is an 8-year bond paying 3% annually; face value $100,000, issued at a market yield of 4.5%.

It was bought on 1/1/Y1.

Bond B is a 10-year bond paying 3.5% and was purchased at face value ($100,000)

It was sold on 1/2/Y2. The interest accrued in Y2 is immaterial.

Required:

  1. Compute the carrying value of each security on the company’s balance sheet for both Year 1 and Year 2:

Year 1

Year 2

Bond A

Bond B

Stock C

Stock D

  1. Provide the journal entries for each security for activity in Year 2:

Solutions

Expert Solution

Carrying value working-
Cost Addition Deletion Fair value gain/ (loss) Interest Carrying value at Y1 Addition Deletion Cash received Fair value gain/ (loss) Interest Carrying value at Y2
Bond A                                   90,000                     -                  -                    (1,000)          3,000         92,000                -                   -        (3,000)            1,500         3,000         93,500
Bond B                                 100,000                     -                  -                    (1,750)          3,500      101,750                -   (101,750)                   -  
Stock C                                   75,000                     -                  -                    (7,000)                 -           68,000                -                   -                  -              5,000                -           73,000
Stock D                                   45,000                     -                  -                      6,000                 -           51,000     (51,000)                   -  
                 (3,750)            6,500
Journal entry-
Date General Ledger Debit Credit
Y1 Bond A----Dr              3,000
Bond B---Dr              3,500
To Interest income A/c         6,500
Y1 Fair value Loss A/c---Dr              3,750
Stock D A/c---Dr              6,000
To Bond A A/c         1,000
To Bond B A/c         1,750
To Stock C A/c         7,000
Y2 Cash A/c---Dr              3,000
To Bond A A/c-         3,000
Y2 Cash A/c---Dr          103,000
To Bond B A/c    101,750
To gain on sale A/c         1,250
Y2 Cash A/c---Dr            49,500
Loss on Sale A/c---DR              1,500
To Stock D A/c      51,000
Y2 Bond A A/c--Dr              3,000
To Interest Income A/c         3,000
Y2 Bond A A/C---Dr              1,500
Stock C A/c---Dr              5,000
To Fair value gain         6,500

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