Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. 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 in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar.		31		Acquired 6% Distribution Transformers Corporation bonds costing $500,000 at face value.
Sep.		1		Acquired $1,050,000 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 $535,000.
Nov.		1		Purchased $1,500,000 of M&D Corporation 4% 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	$	990,000
M&D Corporation bonds	$	1,570,000

(Hint: Interest must be accrued.)

Answer 1

Journal Entries

Date	Account Title & Description		Debit	Credit
31-Mar	7% Corporation Bond		500000
	Cash			500000
01-Sep	8% American Bond		1050000
	Cash			1050000
30-Sep	Cash($500000*6%*6/12)		15000
	Interest Revenue			15000
02-Oct	Cash		535000
	7% Corporation Bond			500000
	Gain on sale of bonds			35000
01-Nov	4% M & D Corporation Bonds		1500000
	Cash			1500000
31-Dec	Intrest Receivable ($1050000*8%*4/12)		28000
	Interest Revenue			28000
31-Dec	Intrest Receivable ($1500000*4%*2/12)		10000
	Interest Revenue			10000
31-Dec	4% M & D Corporation Bonds		70000
	8% American Bond			60000
	Fair Value adjuistement			10000

	FMV	Cost	Different
8% American Bond	990000	1050000	(60000)
4% M & D Corporation Bonds	1570000	1500000	70000

Part 2

Income Statement

Interest revenue	53000
Gain on sale of bonds	35000

Comprehensive Income Statement

Fair value adjustment

10000

Balance Sheet

Assets [990,000 + 1570000]	2,560,000
Shareholders Equity
Accumulated OCI	10,000