Question

antzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2018 and the first week of 2019.

2018
Dec.		17		Purchased 100 Grocers' Supply Corporation bonds at par for $350,000.
		28		Received interest of $2,000 from the Grocers’ Supply Corporation bonds.
		31		Recorded any necessary adjusting entry relating to the Grocers' Supply Corporation bonds. The market price of the bonds were $4,000 per bond.
2019
Jan.		5		Sold the Grocers' Supply Corporation bonds for $395,000.

Required:
1. Prepare the appropriate journal entry or entries for each transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Ant-zow Lear Company

1. Journal Entries –

Date	Account Titles and Explanation				Debit		Credit
17-Dec-18	Investment in Grocers' Bonds				$350,000
	Cash						$350,000
	(To record purchase of 100 Grocers' bonds at par)
28-Dec-18	Cash				$2,000
	Investment (Interest) Revenue						$2,000
	(To record interest received from Grocers')
31-Dec-18	Fair Value Adjustment				$50,000
	Unrealized Holding Gain (L/S)						$50,000
	(to record adjustment for fair value of bonds - 100 x (4,000 -3,500))
5-Jan-19	Cash				$395,000
	Fair Value Adjustment						$45,000
	Investment in Grocers' Bonds						$350,000
	(To record sale of Grocers' bonds and the difference, 395,000 - 350,000 = $45,000)
Unrealized Holding Gain)		$5,000
Fair Value Adjustment			$5,000

                                                                        

Note:

Fair value adjustment –

$50,000 - $45,000 = $5,000