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In: Accounting

During 2018, Dana Company decided to begin investing its idle cash in marketable securities. The information...

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.

Solutions

Expert Solution

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]

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

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