Question

In: Accounting

Problem 17-7 The following information relates to the debt securities investments of Carla Company. 1. On...

Problem 17-7 The following information relates to the debt securities investments of Carla Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of $322,800 at 100 plus accrued interest. Interest is payable April 1 and October 1.

2. On April 1, semiannual interest is received.

3. On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of $201,600 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $63,600, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93, respectively.

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Solutions

Expert Solution

Date Accounts title and Explanation Debit Credit
1-Feb 10% bonds Gibbon co( available for sale) 322,800
Interest Revenue (322800*10%*4/12) 10,760
  Cash 333,560
( To record the purchase of bond from gibbon and recognition of interest for four months
1-Apr Cash 16,140
Interest Revenue (322800*10%*6/12) 16,140
( To record the receipt of semi annual interest on bond purchased on 01-feb
1-Jul 9% bonds of sampson( available for sale) 201,600
Interest Revenue (201600*9%*1/12) 1,512
Cash 203,112
( To record the purchase of bond from sampson and recognition of interest for one month)
1-Sep Cash 65,614
10% bonds Gibbon co( available for sale) 62,964
Interest Revenue (63600*10%*5/12) 2,650
( To record the sale of securities along with interest)
1-Oct Cash 12,960
Interest revenue (322800-63600)*6/12*10% 12,960
( To record the receipt of semi annual interest on bond purchased on 01-feb
1-Dec Cash 9,072
Interest Revenue (201600*9%*6/12) 9,072
( To record the receipt of semi annual interest on bond purchased on 01-jul)
31-Dec Interest Receivable (259200*10%*3/12)+(201600*9%*1/12) 7,992
Interest Revenue 7,992
( To record accrued interest
31-Dec Unrealized Holding Gain or Loss—Equity 27,072
  Securities Fair Value Adjustment 27,072
( To record the fair value adjustment)
gibbon co
Cost (322800-63600) 259200
Market value 246240
unrealized gain/( loss) -12960
Sampson inc
Cost 201600
Market value 187488
unrealized gain/(loss) -14112
Unralized gain or loss -27072

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