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Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1....

Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10

Year 1

Apr. 1. Purchased $83,400 of Welch Co. 7%, 15-year bonds at their face amount plus accrued interest of $973. The bonds pay interest semiannually on March 1 and September 1.
June 1. Purchased $62,400 of Bailey 6%, 10-year bonds at their face amount plus accrued interest of $156. The bonds pay interest semiannually on May 1 and November 1.
Sept. 1 Received semiannual interest on the Welch Co. bonds.
30 Sold $34,800 of Welch Co. bonds at 99 plus accrued interest of $203.
Nov. 1 Received semiannual interest on the Bailey bonds.
Dec. 31 Accrued $1,134 interest on the Welch Co. bonds.
31 Accrued $624 interest on the Bailey bonds.

Record these transactions on page 11

Year 2

Mar. 1 Received semiannual interest on the Welch Co. bonds.
May 1 Received semiannual interest on the Bailey bonds.

Required:

1. Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

Chart of Accounts

CHART OF ACCOUNTS
Soto Industries Inc.
General Ledger
ASSETS
110 Cash
111 Petty Cash
120 Accounts Receivable
121 Allowance for Doubtful Accounts
131 Notes Receivable
132 Interest Receivable
141 Merchandise Inventory
145 Office Supplies
146 Store Supplies
151 Prepaid Insurance
161 Investments-Welch Co. Bonds
162 Investments-Bailey Bonds
165 Valuation Allowance for Trading Investments
166 Valuation Allowance for Available-for-Sale Investments
181 Land
191 Store Equipment
192 Accumulated Depreciation-Store Equipment
193 Office Equipment
194 Accumulated Depreciation-Office Equipment
LIABILITIES
210 Accounts Payable
221 Notes Payable
231 Interest Payable
241 Salaries Payable
251 Sales Tax Payable
EQUITY
311 Common Stock
312 Paid-In Capital in Excess of Par-Common Stock
321 Preferred Stock
322 Paid-In Capital in Excess of Par-Preferred Stock
331 Treasury Stock
332 Paid-In Capital from Sale of Treasury Stock
340 Retained Earnings
350 Unrealized Gain (Loss) on Available-for-Sale Investments
351 Cash Dividends
352 Stock Dividends
390 Income Summary
REVENUE
410 Sales
611 Interest Revenue
612 Dividend Revenue
631 Gain on Sale of Investments
641 Unrealized Gain on Trading Investments
EXPENSES
511 Cost of Merchandise Sold
512 Bad Debt Expense
515 Credit Card Expense
516 Cash Short and Over
520 Salaries Expense
531 Advertising Expense
532 Delivery Expense
533 Repairs Expense
534 Selling Expenses
535 Rent Expense
536 Insurance Expense
537 Office Supplies Expense
538 Store Supplies Expense
561 Depreciation Expense-Store Equipment
562 Depreciation Expense-Office Equipment
590 Miscellaneous Expense
710 Interest Expense
731 Loss on Sale of Investments
741 Unrealized Loss on Trading Investments

Journal

1a. Journalize the entries to record Year 1 transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Adjusting Entries

18

19

20

21

1b. Journalize the entries to record Year 2 transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

Solutions

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