Question

1.    Debt Securities - Trading.   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. 30^th: Purchased $16 million of 5% Marmon Corp. bonds at face value.

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

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

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

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

Use the same data as Problem 1, but now assume the bonds are classified as Trading Securities.

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