Question

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2021 and the first week of 2022. 2021 Dec. 17 Purchased 130 Grocers’ Supply Corporation bonds at par for $585,000. 28 Received interest of $3,200 from the Grocers’ Supply Corporation bonds. 31 Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation bonds. The market price of the bond was $5,000 per bond. 2022 Jan. 5 Sold the Grocers' Supply Corporation bonds for $617,500. Required:

1. Prepare the appropriate journal entry or entries for each transaction.

2. Indicate any amounts that Rantzow-Lear Company would report in its 2021 balance sheet and income statement as a result of this investment.

Answer 1

Journal Entries
Date	Accounts	Debit	Credit
		($)	($)
17/12/21	Investment in Trading of Securities	585000
	Cash		585000
	(Being the purchase of securities)
28/12/21	Cash	3200
	Interest Revenue		3200
	(Being interest revenue received)
31/12/21	Fair value adjustment - Trading of securities	65000
	Unrealized Gain or Loss on Securities		65000
	(Adjustment of investment to the market price on the said date. (5000*130 - 585000)
05/01/22	Cash	617500
	Realized Loss on Trading of securities	32500
	Investment in Trading of Securities		585000
	Fair value adjustment - Trading of securities		65000
II.	Rantzow - Lear Company
	Income Statement
	For the year ended December 31, 2021
	Revenue:		Amount
	Interest revenue		3200
	Unrealized Gain on Securities		65000
	Total		68200
	Rantzow - Lear Company
	Balance Sheet
	As on year ended December 31, 2021
	Assets		Amount
	Investment in Trading of Securities		650000
	(inclusive of fair value adjustment = 585000+65000)