Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $500,000 at face value. Sep. 1 Acquired $1,200,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $575,000. Nov. 1 Purchased $1,900,000 of M&D Corporation 6% bonds at face value. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: American Instruments bonds $ 1,160,000 M&D Corporation bonds $ 1,970,000 Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

. Journal Entry					Working Note for Calculation of Revaluation Gain/ (Loss) on Investment
Date	Account Desription , Title	Debit	Credit		S. No	Investment	Market Price	Purchase price	Revaluation Gain/(Loss)
31/03/2018	8% Distribution Transformer Corporation Bond	$500,000			1	10% American Instrument Bond	$1,160,000	$1,200,000	-$40,000
	Cash		$500,000		2	6% M&D Corporation Bond	$1,970,000	$1,900,000	$70,000
	To Record investment made in DTC Bond					Total	$3,130,000	$3,100,000	$30,000
01-Sep	10% American Instrument Bond	$1,200,000			Working Note for Calculation of Accrued Interest
	Cash		$1,200,000		S. No.	Detail			Amount
	To Record Investment made in AIB				a.	Accrued Interest on Americal Instrument Bond			$40,000.00
						($1200000*10%*4/12)
30-Sep	Cash	$20,000			b.	Accrued Interest on M&D Corporation Bond			$19,000.00
	Interest Income ($500000*4%)		$20,000			($1900000*6%*2/12)
	To Record Interest Received on DTC Bond					Total			$59,000.00
02-Oct	Cash	$575,000				Comprehensive Income Statement
	8% Distribution Transformer Corporation Bond		$500,000			Detail	Amount
	Gain(Loss) on sale of Bond		$75,000			Interest Income	$79,000
	To Record sale of DTC Bond					Revaluation Gain/(Loss) on Investment	$30,000
						Gain/(Loss) on Sale of Bond	$75,000
01-Nov	6% M&D Corporation Bond	$1,900,000				Total	$184,000
	Cash		$1,900,000
	To Record Investment made in M&D C Bond					Balance Sheet
						Detail	Amount
31-Dec	Revaluation Gain/(Loss) on Investment	$40,000				Asset
	10% American Instrument Bond		$40,000			Current Asset
	To Record Revaluation of invenstment					Interest Receivable	$59,000
31-Dec	6% M&D Corporation Bond	$70,000				Investment in Bond	$3,130,000
	Revaluation Gain/(Loss) on Investment		$70,000
	To Record Revaluation of invenstment
31-Dec	Interest Receivable	$59,000
	interest Income		$59,000
	To Record accrued Interest Income
31-Dec	Interest Income	79000
	Revaluation Gain/(Loss) on Investment	30000
	Gain/(Loss) on Sale of Bond	75000
	Comprehensive Income Statement		184000
	To close all income/Gain /Loss in Income Statement