Question

In: Accounting

On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities....

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?

Solutions

Expert Solution

1)

Date Account title Debit credit
1Jan 2020 Investment in trading securities -Debt 30200
cash 30200
1Jan 2020 Investment in trading securities-Debt 19500
cash 19500
31Dec 2020 cash 4000
Interest revenue [40000*10%] 4000
[Being interest earned on Wall company bonds]
31Dec 2020 cash 3600
Interest revenue [30000*12%] 3600
[Being interest earned on Doherty Company bonds]
31Dec 2020 cash 1600
Interest revenue [20000*8%] 1600
31Dec 2020 Investment in trading securities-Debt 3300
Unrealized holding gain on 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

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities....
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...
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities....
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $14,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $12,000. The December 31, 2018, balance sheet showed the following: Marsh Company Partial Balance Sheet December 31, 2018 1 Assets 2 Investment in Available-for-Sale Securities $14,000.00 3 Less: Allowance...
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities....
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $14,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $12,000. The December 31, 2018, balance sheet showed the following: Marsh Company Partial Balance Sheet December 31, 2018 1 Assets 2 Investment in Available-for-Sale Securities $14,000.00 3 Less: Allowance...
On December 31, 2018, M Company held X Company bonds in its portfolio of available-for-sale securities....
On December 31, 2018, M Company held X Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following: M Company Partial Balance Sheet December 31, 2018 1 Assets 2 Investment in Available-for-Sale Securities $15,000.00 3 Less: Allowance...
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities....
On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following: Marsh Company Partial Balance Sheet December 31, 2018 1 Assets 2 Investment in Available-for-Sale Securities $15,000.00 3 Less: Allowance...
At December 31, 2020, the investments in the portfolio of the trading securities of Mac Company...
At December 31, 2020, the investments in the portfolio of the trading securities of Mac Company included the following: Atlanta Corp. bonds, 5%, $100,000 face value, purchased on Oct. 1, 2020 at par Dallas Inc. bonds, 4%, $50,000 face value, purchased on July 1, 2020 at par Required: Record the receipt of quarterly interest from the Atlanta Corp. bonds on December 31, 2020. Record the receipt of semiannual interest from the Dallas Inc. bonds on December 31, 2020. Record the...
Vaughn Company has the following securities in its investment portfolio on December 31, 2017 (all securities...
Vaughn Company has the following securities in its investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,100 shares of Anderson Co. common stock which cost $55,800, (2) 9,600 shares of Munter Ltd. common stock which cost $547,200, and (3) 6,100 shares of King Company preferred stock which cost $250,100. The Fair Value Adjustment account shows a credit of $10,900 at the end of 2017. In 2018, Vaughn completed the following securities transactions. 1. On January...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method. Investments Cost Fair Value 1,500 shares of Gordon, Inc., Common $72,500 $68,500 5,000 shares of Wallace Corp., Common 176,300 171,700 400 shares of Martin, Inc., Preferred 63,300 64,800 $312,100 $305,000 All of the securities were purchased in 2020. In 2021, Ayayai completed the following securities transactions. March 1 Sold the 1,500 shares of Gordon, Inc., Common,...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method. Investments Cost Fair Value 1,500 shares of Gordon, Inc., Common $72,500 $68,500 5,000 shares of Wallace Corp., Common 176,300 171,700 400 shares of Martin, Inc., Preferred 63,300 64,800 $312,100 $305,000 All of the securities were purchased in 2020. In 2021, Ayayai completed the following securities transactions. March 1 Sold the 1,500 shares of Gordon, Inc., Common,...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these...
Ayayai Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method. Investments Cost Fair Value 1,500 shares of Gordon, Inc., Common $76,400 $72,200 5,000 shares of Wallace Corp., Common 184,100 179,300 400 shares of Martin, Inc., Preferred 56,200 57,800 $316,700 $309,300 All of the securities were purchased in 2020. In 2021, Ayayai completed the following securities transactions. March 1 Sold the 1,500 shares of Gordon, Inc., Common,...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT