Question

. Debt Securities - HTM. Precision Castparts builds sophisticated machinery for the aerospace industry and frequently invests excess cash in corporate bonds, which it holds to maturity. The following transactions relate to Precision's bond investments during 2019. Precision has the positive ability and intent to hold all bonds until maturity, and their year-end is December 31.

Apr. 30th: Purchased $16 million of 5% Marmon Corp. bonds at face value.

June 30th: Received the $400,000 semiannual interest payment on the Marmon bonds.

Oct. 1st: Purchased $10 million of 4% General Re bonds at face value. These bonds pay interest on July 1st and January 1st of each year.

Dec. 1st: Sold the Marmon bonds for $16.5 million.

Dec. 31st: Prepare any necessary adjusting entries. The fair value of the General Re bonds was $10.2 million. Remember to accrue interest.

a. Prepare the appropriate journal entry for each transaction above, as well as any adjusting journal entries necessary at year-end.

b. Indicate amounts that Precision will show on its 2019 Income Statement, Statement of Comprehensive Income, and Balance Sheet

i. Income Statement

ii. Statement of Comprehensive Income

iii. Balance Sheet

Answer 1

Solution (a)	Journal Entry
			Amount in $
Date	Accounts and explanation	Debit	Credit
2019
Apr. 30	5% Marmon corp. Bond	16000000
	To Cash		16000000
	(bond purchased recorded)
Jun. 30	Cash	400000
	To Income statement -Interest on 5% Marmon corp. Bond		400000
	(semi-annual interest received from Marmon corp.)
Oct. 1	4% General Re Bond	10000000
	To Cash		10000000
	(bond purchased recorded)
De. 1	Cash	16500000
	To 5% Marmon Corp. Bond		16000000
	To Income statement-Profit on sale of bond		500000
	(bond sold recorded and gain on sale of bond recorded)
Dec. 31	Interest receivable	200000
	To Statement of comprehensive income		200000
	(Unrealized gain on bond recorded)
Solution (b)	Disclosure
		Amount in $
	(i) Income statement
	Interest on 5% Marmon corp. bonds	400000
	Profit on sale of bond	500000
	Total	900000
	(ii) Statement of comprehensive income
	Unrealized gain on General Re Bond	200000
	(iii) balance sheet
	4% General Re bond	10000000
	Interest receivable	200000
	Total	10200000