Question

Colah Company purchased $1.5 million of Jackson, Inc. 8% bonds at par on July 1, 2018, with interest paid semi-annually. When the bonds were acquired Colah decided to elect the fair value option for accounting for its investment. At December 31, 2018, the Jackson bonds had a fair value of $1.75 million. Colah sold the Jackson bonds on July 1, 2019 for $1,350,000.

Required: 1. Prepare Colah's journal entries for the following transactions:

a. The purchase of the Jackson bonds on July 1.

b. Interest revenue for the last half of 2018.

c. Any year-end 2018 adjusting entries.

d. Interest revenue for the first half of 2019.

e. Any entry or entries necessary upon sale of the Jackson bonds on July 1, 2019.

2. Fill out the following table to show the effect of the Jackson bonds on Colah’s net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019:

	2018	2019	Total
Net Income	?	?	?
OCI	?	?	?
Comprehensive Income	?	?	?

Answer 1

Journal enteries
Date	Particulars	Debit	Credit
01-07-18	8% Bond	1,500,000
	Bank		1,500,000
31-12-18	8% Bond	250,000
	OCI		250,000
31-12-18	Bank	60,000
	Interest		60,000
30-06-19	Bank	60,000
	Interest		60,000
01-07-19	Bank	1,350,000
	OCI	250,000
	Profit and loss	150,000
	8% bond		1,750,000
	2018	2,019	Total
Net Income	60,000	(90,000)	(30,000)
OCI	250,000	(250,000)	-
Comprehensive income	310,000	(340,000)