Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt 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, 2017.

Mar.		31		Acquired 6% Distribution Transformers Corporation bonds costing $530,000 at face value.
Sep.		1		Acquired $1,095,000 of American Instruments’ 8% bonds at face value.
Sep.		30		Received semiannual interest payment on the Distribution Transformers bonds.
Oct.		2		Sold the Distribution Transformers bonds for $568,000.
Nov.		1		Purchased $1,530,000 of M&D Corporation 4% bonds costing 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	$	1,032,000
M&D Corporation bonds	$	1,603,000

(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. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
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.

I need help with the journal entries

Answer 1

Journal entries as required:

Date	Account Titles and Explanation	Debit	Credit
Mar 31, 2018	Investment in Distribution Transformers bonds	530000
	Cash		530000
	(To record acquisition of Distribution Transformers bonds)
Sep 1, 2018	Investment in American Instruments bonds	1095000
	Cash		1095000
	(To record acquisition of American Instruments bonds)
Sep 30, 2018	Cash	15900
	Interest revenue ($530000 x 6% x 1/2)		15900
	(To record semiannual interest received)
Oct 2, 2018	Fair value adjustment ($568000 - $530000)	38000
	Unrealized holding gain-OCI		38000
	(To update the fair value adjustment)
Oct 2, 2018	Cash	568000
	Investment in Distribution Transformers bonds		530000
	Gain on sale of investments		38000
	(To record sale of Distribution Transformers bonds)
Nov 1, 2018	Investment in M&D Corporation bonds	1530000
	Cash		1530000
	(To record acquisition of M&D Corporation bonds)
Dec. 31, 2018	Interest receivable ($1095000 x 8% x 4/12)	29200
	Interest revenue		29200
	(To record interest accrued on American Instruments bonds)
Dec. 31, 2018	Interest receivable ($1530000 x 4% x 2/12)	10200
	Interest revenue		10200
	(To record interest accrued on M&D Corporations bonds)
Dec. 31, 2018	Fair value adjustment	10000
	Unrealized holding gain-OCI		10000
	(To record adjustment to fair value)

Working:

Investment	Cost $	Fair Value $	Unrealized Gain (Loss) $
American Instruments bonds	1095000	1032000	-63000
M&D Corporation bonds	1530000	1603000	73000
Total $	2625000	2635000	10000