Question

On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities. The bonds have a par value of $40,000, carry a 10% annual interest rate, mature in 2026, and had originally been purchased at par. The market value of the bonds on December 31, 2019 was $38,000.

On January 1, 2020, Sumner acquired bonds of Doherty Company with a par value of $30,000 for $30,200. The Doherty Company bonds carry an annual interest rate of 12% and mature on December 31, 2024. Additionally, on the same date, Sumner acquired Maggio Company bonds with a face value of $20,000 for $19,500. The Maggio Company bonds carry an 8% annual interest rate and mature on December 31, 2029. At the end of 2020, the respective market values of the bonds were: Wall, $39,000; Doherty, $31,000; and Maggio, $21,000. Sumner classifies all of the debt securities as trading. Assume that Sumner uses the straight-line method to amortize any discounts or premiums.

Required:

1.	Prepare the journal entries necessary to record the purchase of the investments on January 1, 2020, the annual interest payments on December 31, 2020, and the adjusting entry needed on December 31, 2020.
2.	What would Sumner disclose on its December 31, 2020, balance sheet related to these investments?

CHART OF ACCOUNTS
Sumner Company
General Ledger
ASSETS 111 Cash 113 Investment in Trading Securities 114 Investment in Available-for-Sale Securities 119 Allowance for Change in Fair Value of Investment 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 191 Investment in Held-to-Maturity Debt Securities LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings 390 Unrealized Holding Gain/Loss: Trading Securities 391 Unrealized Holding Gain/Loss: Available-for-Sale Securities	REVENUE 411 Sales Revenue 431 Interest Income 441 Gain on Sale of Trading Securities EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 895 Loss on Sale of Trading Securities 910 Income Tax Expense

Answer 1

Date	Account title	Debit	credit
1 Jan 2020	Investment in Trading Securities	30200
	Cash		30200
1 Jan 2020	Investment in Trading Securities	19500
	Cash		19500
31 Dec 2020	Cash	4000
	Interest Income [40000*10%]		4000
	[Being interest earned on Wall company bonds]
31 Dec 2020	Cash	3600
	Interest Income [30000*12%]		3600
	[To record interest earned on Doherty Company bonds]
31 Dec 2020	cash	1600
	Interest Income [20000*8%]		1600
31 Dec 2020	Investment in Trading Securities	3300
	Unrealized Holding Gain Trading Securities		3300

working :

	Cost /last carrying value	Market
Wall company	38000	39000
Doherty company	30200	31000
Maggio	19500	21000
Total	87700	91000
Unrealized gain = 91000-87700 =3300

2)

BALANCE SHEET AS ON DECEMBER 31 2020
Current asset
Short term investment
Investment in trading securities	91000