Question

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2021 and the first week of 2022. 2021 Dec. 17 Purchased 145 Grocers’ Supply Corporation bonds at par for $652,500. 28 Received interest of $3,800 from the Grocers’ Supply Corporation bonds. 31 Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation bonds. The market price of the bond was $5,000 per bond. 2022 Jan. 5 Sold the Grocers' Supply Corporation bonds for $688,750.

Required:
1. Prepare the appropriate journal entry or entries for each transaction.
2. Indicate any amounts that Rantzow-Lear Company would report in its 2021 balance sheet and income statement as a result of this investment.

Answer 1

1	No.	Date	General Journal	Debit	Credit
	1	Dec 17, 2021	Investment in Grocers’ Supply bonds	652,500
			Cash		652,500
	2	Dec 28, 2021	Cash	3,800
			Interest Revenue		3,800
	3	Dec 31, 2021	Fair Value Adjustment	72,500
			Unrealized Holding Gain - NI		72,500
			(145 x $5,000 - $652,500)
	4	Jan 06, 2019	Unrealized Holding Gain - NI	36,250
			Fair Value Adjustment		36,250
			(145 x $5,000 - $688,750)
	5	Jan 06, 2019	Cash	688,750
			Fair Value Adjustment		36,250
			Investment in Grocers’ Supply bonds		652,500
2			Balance Sheet
			Short-term investments
			Trading Securities		725,000
			Income Statement
			Investment Revenue		3,800
			Unrealized Holding Gain		72,500