Question

he following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. 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, 2017. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $530,000 at face value. Sep. 1 Acquired $1,290,000 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 $565,000. Nov. 1 Purchased $2,050,000 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 Instruments bonds $ 1,243,000 M&D Corporation bonds $ 2,123,000 (Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Mar	Investment in DT Corporation	530,000.00
	Cash		530,000.00
	(record the Bonds accquired of DT Corp.)
1-Sep	Investment in AI	1,290,000.00
	Cash		1,290,000.00
	(record the Bonds accquired of AI)
30-Sep	Cash	21,200.00
	Investment Revenue		21,200.00
	(record the Interest received from DT Bonds)
2-Oct	Cash	565,000.00
	Investment in DT Corporation		530,000.00
	Gain on sale of Investment		35,000.00
	(record the sale of DT Bonds)
1-Nov	Investment in M&D Corp.	2,050,000.00
	Cash		2,050,000.00
	(record the common stock accquired of M&D Corp.)
31-Dec	Investment Revenue Receivable	63,500.00
	Investment Revenue		63,500.00
	(record the interest due on AI Bonds & M&D Bonds)
	Interest Revenue:
	AI Bonds - $1,290,000 X 10% X 4/12	43,000.00
	M & D Bonds - $2,050,000 X 6% X 2/12	20,500.00
	Total Interest Revenue	63,500.00
31-Dec	Fair Value Adjustments	26,000.00
	Net Unrealized Holding Gain & Losses - OCI		26,000.00
	(record the unrealized gain on investments)

	Cost	Fair Value	Difference
AI - Bonds	1,290,000.00	1,243,000.00	(47,000.00)
M& D - Bonds	2,050,000.00	2,123,000.00	73,000.00
Total	3,340,000.00	3,366,000.00	26,000.00
Answer 2.
Income Statement
Investment Revenue	84,700.00
Gain on Sale of Investment	35,000.00	119,700.00
Statement of Comprehensive Income
Net Unrealized Holding Gains	26,000.00
Balance Sheet
Assets
Current Assets
Securities Available for Sale	3,340,000.00
Add: Fair Value Adjustments	26,000.00	3,366,000.00
Shareholders' Equity
Net Unrealized Holding Gains		26,000.00