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

Sol:

Date	General Journal	Debit	Credit
Dec 17,2021	Investment In Grocer Bonds	$ 585,000.00
Cash		$ 585,000.00
Dec 28,2021	Cash	$      3,200.00
Interest Revenue		$      3,200.00
Dec 31,2021	Fair Value Adjustment	$    65,000.00
Unrealized holding gain		$    65,000.00
Jan 5,2022	Unrealized holding gain	$    32,500.00
Fair value adjustment		$    32,500.00
	Cash	$ 617,500.00
	Fair value adjustment		$32,500
	Investment in Grocer Bonds		$585,000
	Dec 31,2021
	Unrealized holding gain (130 x 5,000) - $585,000
	650,000-585,000 = 65,000
	Jan 5,2022
	Unrealized holding Gain = 65,000-($617,500-$585,000)
	65,000-32,500=32,500
	Income Statement
	Interest Revenue	$3,200
	Unrealized Holding Gain	$65,000
	Balance Sheet
	Trading Securities(585,000+65000)	$650,000