The following selected transactions relate to investment activities of Ornamenta
ID: 2329366 • Letter: T
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 $570,000 at face value.
Sep. 1 Acquired $1,410,000 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 $625,000.
Nov. 1 Purchased $2,250,000 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 $ 1,367,000 M&D Corporation bonds $ 2,327,000 (Hint: Interest must be accrued.)
Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.
2. 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.
Explanation / Answer
1) Journal Entries ;-
Journal entries for Dividend :-
Working Note :-
Net Unrealized holding gain/(loss) as on Dec. 31, 2018.
2) Income Statement :-
Statement of Comprehensive Income :-
Balance Sheet ;-
Date Particulars Debit($) Credit($) Mar 31 Investment in Corporation DT shares A/c Dr. 570000 To Cash A/c 570000 Sep. 1 Investment in American Instruments Bonds A/c Dr. 1410000 To Cash A/c 1410000 Oct. 2 Cash A/c Dr. 625000 To Investment in Corporation DT Share A/c 570000 To Gain on Sale of Investments ($625000-$570000) 55000 Nov. 1 Investment in M&D Crop. Bonds A/c Dr. 2250000 To Cash A/c 2250000 Dec.31 Investment Revenue Receivable A/c Dr. 47000 To Investment Revenue A/c ($1410000*10%*(4/12)) 47000 Dec. 31 Fair Value Adjustment A/c Dr. (From working Note) 37000 To Net Unrealized Holding Gains and Losses A/c 37000