Question

1.   Kit Kat purchased $10,000 of US Treasury bonds at their face amount on January 1, 2019. Brokerage commission was $1,000. The bonds have an interest rate of 5% received semiannually June 30 and December 31.

• Journalize purchasing the bond and the first interest payment on June 30.

On December 31 Kit Kat sold the treasury bonds at 105, which is a price equal to 105% of their face amount.

• Journalize the sale of the bonds

2.    Homer Company purchases $18,000 of US Treasury bonds at their face amount on March 17, 2016, plus accrued interest for 45 days. The bonds have an interest rate of 6%, payable semiannually: July 31 and January 31.

On July 31, Homer Company receives a semiannual interest payment.

1. Homer Company’s accounting period ends on December 31 of each year, journalize the adjusting entry for accrued interest

On January 31, 2017, Homer received semiannual interest payment

On January 31, 2017 Homer company sells the Treasury bonds at 98, which is a price equal to 98% of their face amount

Journalize these transactions

3. On September 1, 1,550 shares of Jonny Top are acquired at a price of $24 per share plus a $40 brokerage commission.

On October 14, a $0.60 per share dividend was received on the Jonny Top stock.

On November 11, 775 shares of Jonny Top stock were sold for $20 per share less a $45 brokerage commission.

Prepare the journal entries for the original purchase, dividend, and sale.

4. Kit Kat purchased 40% interest in Jonny Cake corporation common stock on January 2, 2018 for $350,000.

On December 31 Jonny Cake reported net income of $105,000.

During the year, Jonny Cake declared and paid cash dividends of $45,000.

Kit Kat sold Jonny Cake’s stock on January 1, 2019 for $400,000.

Journalize these transactions for Kit Kat

5   On December 31, the cost of a company’s trading securities portfolio was $79,200, and the fair value was $76,800.

On December 31, the cost of a company’s trading securities portfolio was $80,200, and the fair value was $82,800.

Prepare the December 31 adjusting entries to record the unrealized gain or loss on trading investments.

Answer 1

Kitkat Journal

01-Jan-2019   US treasury bonds A/c Dr $ 10000
Brokerage Commission A/c Dr $ 1000
To Cash / Bank A/c Cr $11000
(Being purchase of bonds)

30-Jun-2019 Cash / Bank A/c Dr $ 500
To Interest received Cr $500
(Being interest received)

31-Dec-2019 Cash / Bank A/c Dr $ 10500
To US treasury bonds Cr $10000
To Gains from sale of bonds Cr $500
(Being sale of bonds accounted)

Homer company

17-Mar-2016   US treasury bonds A/c Dr $ 18000
Interest accrued A/c Dr $ 266.30
To Cash / Bank A/c Cr $18266.30
(Being purchase of bonds)

31-Jul-2016 Cash / Bank A/c Dr $ 1080
To Interest received Cr $1080
(Being interest received)

31-Dec-2016 Accrued Interest Income A/c Dr $ 905.42
To Interest received Cr $ 905.42
(Being Accrued interest accounted for 153 days)

31-Jan-2017 Cash / Bank A/c Dr $ 1080
To Interest received Cr $1080
(Being interest received)

31-Jan-2017 Cash / Bank A/c Dr $ 17640
Loss from sale of bonds A/c Dr $ 360
To US treasury bonds    Cr $18000
(Being sale of bonds accounted)

01-Sep     US treasury bonds A/c (1550*24) Dr $ 37200
Brokerage commission A/c    Dr $ 40
To Cash / Bank A/c Cr $ 37240
(Being purchase of Johnny top bonds)

14-Oct Cash / Bank A/c (1550*0.60) Dr $ 930
To Interest received Cr $930
(Being dividend received)

11-Nov Cash / Bank A/c (775*20) Dr $ 15455
  To Brokerage Dr $ 45
To US treasury bonds Cr $15500
(Being sale of bonds accounted)

11-Nov Investment in Johnny top A/c    Dr $ 350000
To Equity share capital (40% stake) Cr $350000
(Being investments made in Johnny top accounted)

31-Dec Profit & loss A/c Dr $ 105000
To Net Profit Cr $105000
(Being net profit accounted)

31-Dec Cash / Bank A/c (40% of $45000)    Dr $ 18000
To Dividend received A/c Cr $18000
(Being dividend received for 40% stake accounted)

1-Jan-2019 Cash / Bank A/c Dr $ 400000
To US treasury bonds Cr $ 350000
To Gains from sale of bonds Cr $ 50000
(Being gain on sale of bonds accounted)

31-Jan-2017 Sale A/c Dr $ 76800
Loss from sale of bonds A/c Dr $ 2400
To US treasury bonds    Cr $79200
(Being unrealised loss on sale of bonds accounted)

1-Jan-2019 Sale A/c Dr $ 82800
To US treasury bonds Cr $ 80200
To Unrealised Gains Cr $ 2600
(Being unrealised gains on sale of bonds accounted)