Question

Crane Carecenters Inc. provides financing and capital to the healthcare industry, with a particular focus on nursing homes for the elderly. The following selected transactions relate to bonds acquired as an investment by Crane, whose fiscal year ends on December 31. 2020 Jan. 1 Purchased at face value $1,554,000 of Javier Nursing Centers, Inc., 10-year, 5% bonds dated January 1, 2017, directly from Javier. Dec. 31 Accrual of interest at year-end on the Javier bonds. (Assume that all intervening transactions and adjustments have been properly recorded and that the number of bonds owned has not changed from December 31, 2020, to December 31, 2022.) 2023 Jan. 1 Received the annual interest on the Javier bonds. Jan. 1 Sold $777,000 Javier bonds at 108. Dec. 31 Accrual of interest at year-end on the Javier bonds.

1. Journalize the listed transactions for the years 2020 and 2023. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

2. Assume that the fair value of the bonds at December 31, 2020, was $1,709,400. These bonds are classified as available-for-sale securities. Prepare the adjusting entry to record these bonds at fair value. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

3. Based on your analysis in part (b), show the balance sheet presentation of the bonds and interest receivable at December 31, 2020. Assume the investments are considered long-term. Indicate where any unrealized gain or loss is reported in the financial statements.

Answer 1

1.)	Date	Account Titles	Debit	Credit
	2020
	Jan.1,2020	Investment in 5% Bond-Javier	1,554,000
		Cash		1,554,000
	Dec. 31,2020	Interest Receivable	77,700
		Interest Revenue		77,700
		(1,554,000 x 5% )
	2023
	Jan.1,2023	Cash	77,700
		Interest Receivable		77,700
	Jan.1,2023	Cash (777,000 x 108)/100	839,160
		Investment in 5% Bond-Javier		777,000
		Gain on sale Debt Investment		62,160
2.)	Date	Account Titles	Debit	Credit
	2020
	Dec. 31,2020	Fair Value Adjustment—Available-for-Sale .	155,400
		Unrealized Gain		155,400
		( 1,709,400 - 1,554,000 )

3.)	Balance Sheet
	Assets
	Non-Current Assets
	Investment in 5% Bond-Javier at Cost	1,554,000
	Add: Fair value adjustment-AFS	155,400
			1,709,400
	Current Assets
	Interest Receivable		77,700
	Statement of Other Comprehensive Income
	Unrealized Gain		155,400