Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation. The company buys securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2015.

2016
Feb.	21	Acquired Distribution Transformers Corporation common shares costing $500,000.
Mar.	18	Received cash dividends of $8,500 on the investment in Distribution Transformers common shares.
Sep.	1	Acquired $1,200,000 of American Instruments' 10% bonds at face value.
Oct.	20	Sold the Distribution Transformers shares for $575,000.
Nov.	1	Purchased M&D Corporation common shares costing $1,900,000.
Dec.	31	Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:

  

American Instruments bonds	$	1,160,000
M&D Corporation shares	$	1,970,000

    

(Hint: Interest must be accrued for the American Instruments’ bonds.)

    

2017
Jan.	20	Sold the M&D Corporation shares for $1,995,000.
Mar.	1	Received semiannual interest of $60,000 on the investment in American Instruments bonds.
Aug.	12	Acquired Vast Communication common shares costing $750,000.
Sept.	1	Received semiannual interest of $60,000 on the investment in American Instruments bonds.
Dec.	31	Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:

      

Vast Communication shares	$	770,000
American Instruments bonds	$	1,140,000

    

Required:

1.

Prepare the appropriate journal entry for each transaction or event during 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 Record the acquisition of Distribution Transformers Corporation shares costing $500,000. 2 Record the receipt of cash dividends of $8,500 on the investment in Distribution Transformers common shares. 3 Record the acquisition of American Instrument's 10% bonds at face value 4 Record the sale of Distribution Transformers shares for $575,000. 5 Record the purchase of M&D Corporation common shares costing $1,900,000. 6 Record any necessary adjusting entries at year end related to the investments. 7 Record the fair value adjustment. Indicate any amounts that Ornamental Insulation would report in its 2016 balance sheet and income statement as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.) Prepare the appropriate journal entry for each transaction or event during 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 1 Record the sale of M&D Corporation shares for $1,995,000. 2 Record the receipt of semiannual interest of $60,000 on the investment in American Instruments bonds. 3 Record the acquisition of Vast Communications shares costing $750,000. 4 Record the receipt of semiannual interest of $60,000 on the investment in American Instruments bonds. 5 Record any necessary adjusting entries at year end related to the investments. 6 Record the fair value adjustment. Indicate any amounts that Ornamental Insulation would report in its 2017 balance sheet and income statement as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

		( in $ )	( in $ )
Date	Accounts Name	Debit	Credit
21.02.2016	Investment in Distribution Transformer Corporation	500000
	Cash/ Bank		500000
18.03.2016	Cash/ Bank	8500
	Dividends Received		8500
01.09.2016	Bonds of American Instruments 10%	1200000
	Cash/Bank		1200000
20.10.2016	Cash/ Bank	575000
	Investment in Distribution Transformer Corporation		500000
	Profit on investment		75000
01.11.2016	Investment in M & D Corporation	1900000
	Cash/ Bank		1900000
31.12.2016	Interest Accrued on Bonds	120000
	Interest Received		120000
No adjustment entry to be made on market value of investments
20.01.2017	Cash/Bank	1995000
	Investment in M & D Corporation		1900000
	Profit on investment		95000
01.03.2017	Cash/ Bank	60000
	Interest Accrued		60000
12.08.2017	Investment in Vast Communication	750000
	Cash/ Bank		750000
01.09.2017	Cash/ Bank	60000
	Interest Accrued		60000
31.03.2017	Interest Accrued on Bonds	120000
	Interest Received		120000
Ans:- Profit on investment of Rs. 95000 should be report in Income Statements
Investment in American Instruments of Rs.1200000, in Vast Communication of Rs. 750000 and interest accrued
of Rs. 60000 should be reported in Balance Sheet of 2017.