Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar.		31		Acquired 8% Distribution Transformers Corporation bonds costing $490,000 at face value.
Sep.		1		Acquired $1,170,000 of American Instruments' 10% bonds at face value.
Sep.		30		Received semiannual interest payment on the Distribution Transformers bonds.
Oct.		2		Sold the Distribution Transformers bonds for $560,000.
Nov.		1		Purchased $1,850,000 of M&D Corporation 6% bonds at face value.
Dec.		31		Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are

American Instrument Bonds	$1,129,000
M&D Corporation Bonds	$1,919,000

(Hint: Interest must be accrued.)
Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Answer 1

Working
Particulars	Date of Purchase	Closing Date	No of Days	Value of Bond	Interest
10% American Instrument bonds Investment A/c	01/09/2021	31/12/2021	121.00	1170000	38786.3
6% M&D Corporation bonds Investment A/c	01/11/2021	31/12/2021	60.00	1850000	30410.96

Particulars	Cost	Market Value	Gain/ Loss
10% American Instrument bonds Investment A/c	1170000	1129000	-41000
6% M&D Corporation bonds Investment A/c	1850000	1919000	69000

Journal Entries

Date	Particulars	Dr/Cr	Amount ($)
31/03/2021	8% Distribution Transformers Corporation bonds Investment A/c	Dr	490000
	To Bank A/c	Cr	490000
	(Being Investment in 8% Distribution Transformers Corporation bonds at face value)
01/09/2021	10% American Instrument bonds Investment A/c	Dr	170000
	To Bank A/c	Cr	170000
	(Being Investment in 10% American Instrument bonds at face value)
30/09/2021	Bank A/c	Dr	19600
	To Interest on Investment	Cr	19600
	( Interest on Investment Received for 8% Distribution Transformers Corporation bonds Investment )
02/10/2021	Bank A/c	Dr	560000
	To 8% Distribution Transformers Corporation bonds Investment A/c	Cr	490000
	To profit on Sale of 8% Distribution Transformers Corporation bonds Investment A/c	Cr	70000
	( Sale of 8% Distribution Transformers Corporation bonds Investment A/c)
01/11/2021	6% M&D Corporation bonds Investment A/c	Dr	1850000
	To Bank A/c	Cr	1850000
	(Being Investment in 6% M&D Corporation bonds Investment at face value)
31/12/2021	10% American Instrument bonds Investment A/c	Dr	38786
	6% M&D Corporation bonds Investment A/c	Dr	30410
	To Interest on Investment A/c	Cr	69196
	( Interest Accrued on Investments )
31/12/2021	Interest on Investment A/c	Dr	88796
	Profit on sale of Investment A/c	Dr	70000
	To Profit & Loss A/c	Cr	158796
	(Interest & Profit Transferred to Profit & Loss A/c)
31/12/2021	Other Comprehensive Income	Dr	41000
	To 10% American Instrument bonds Investment A/c	Cr	41000
	( Investment is revalued at market Price)
31/12/2021	6% M&D Corporation bonds Investment A/c	Dr	69000
	To Other Comprehensive Income	Cr	69000
	( Investment is revalued at market Price)

(b)

	Amounts that Ornamental Insulation will Report
a)	Other Comprehensive Income	28000	(69000-41000)
b)	Investments Value In Balancesheet
1	10% American Instrument bonds Investment A/c	1129000
2	6% M&D Corporation bonds Investment A/c	1919000
c)	Net Income Transfer to Profit & Loss	158796
d)	Retained Earnings	158796
e)	Equity part contains OCI	28000