In: Accounting
During 2018, Dana Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Dana’s 2018 marketable security transactions: Apr. 1 Purchased $20,000 face value of Solomon Inc. 12% bonds at par plus accrued interest; interest on the bonds is payable each June 30 and December 31 June 30 Received the semiannual interest on the Solomon bonds. Nov. 1 Purchased $30,000 face value of Edwards Company 11% bonds at par plus accrued interest; interest on the bonds is payable each June 1 and December 1. Dec. 1 Received the interest on the Edwards bonds and sold the bonds for $30,300. Dec. 31 Received the interest on the Solomon bonds. At year-end, the market price of the Solomon bonds was $20,200. Required: 1. Record Dana’s investment transactions for 2018. 2. Show the items of income or loss on temporary investments Dana reports on its 2018 income statement. 3. Show the carrying value of Dana’s investment account on its December 31, 2018, balance sheet.
1)
Date | Account title | Debit | credit |
April 1 | Short term investment | 20000 | |
Interest receivable | 600 | ||
cash | 20600 | ||
[being investment made and paid for 3months accrued interest 20000*.12*3/12] [31 dec -1 april] |
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JUne 30 | Cash | 1200 | |
Interest receivable | 600 | ||
Interest revenue [20000*.12*3/12] [1april -30 june] | 600 | ||
Nov 1 | short term investment | 30000 | |
Interest receivable | 1375 | ||
cash | 31375 | ||
[being investment made along with 5 month accrued interest 30000*.11*5/12] [1june - 1 nov ] |
Dec 1 | cash | 1650 | |
Interest receivable | 1375 | ||
Interest revenue [30000*.11*1/12] [1nov - 1dec] | 275 | ||
dec 1 | cash | 30300 | |
Gain on sale of short term investment | 300 | ||
short term investment | 30000 | ||
dec 31 | cash | 1200 | |
Interest revenue [20000*.12*6/12] | 1200 | ||
dec 31 | short term investment | 200 | |
Unrealised gain on short term security [20200-20000] | 200 |
2)
Income statement (Partial) | |
other income /(loss) | |
Interest revenue [600+275+1200] | 2075 |
Gain on sale of short term investment | 300 |
Unrealised gain on short term security | 200 |
3)
Balance sheet (Partial) | |
Asset | |
current asset | |
short term Investment | 20200 |