The following selected transactions relate to Investment activities of Ornamenta
ID: 2329740 • Letter: T
Question
The following selected transactions relate to Investment activities of Ornamental Insulation Corporaton during 2018. The company buys debt securtties, not Intending to proft from short-term differences in price and not necessarlly to hold debt securties to maturity but to have them avalable for sale when circumstances warrant. Ormamentals fiscal year ends on December 31. No Investments were held by Ornamental on December 31, 2017 Mar. 31 Acquired 7% Distribution Transforme rs Corporation bonds costing $590,000 at face value. Sep. 1 Acquired $1,185,000 of American Instruments, 8% bonds at face value Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct:2 Sold the Distribution Transformers bonds for $634, 000 Nov. 1 purchased $1,590,000 of M&D Corporation bonds costing 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 $1,116, 000 H&D Corporation bonds $1, 669, 000 Hint Interest must be accrued.) Required: 1. Prepare the approprate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at yea end. For any sales, prepare entres to update the falr-value adjustment, record any reclassification adjustment, and record the sale 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 resuit of these investments Complete this question by entering your answers in the tabs below Required Required 2 Prepare t year end For any sales, prepare entries to update the fain-value adjustment, record any reclassification adjustment, and record the rale: (E no entry s reavired for a tranraction/evene: selen he appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at No journal entry requiredt in the first account fieldi lournal entry worksheetExplanation / Answer
Required 1:
Journal Entry 1: Investment in 7% Bonds Distribution transformation Bond of $5,90,000
March 31, 2018 Investment in Distribution transformation Bond A/c $5,90,000
To Cash A/c $5,90,000
Journal Entry 2: Investment in 8% American Institutional Bond value $1,185,000.
Sep 1, 2018 Investment in American Instrumental Bond A/c $1,185,000
To Cash A/c $1,185,000
Journal Entry 3: Semi Annual Interest received
Sep 30, 2018 Cash A/c $20,650
To Interest Revenue $20,650
Journal Entry 4: Entry for fair value adjustment on the sale of distribution of transformation bonds
October 02, 2018 Fair value Adjustments $44,000
Gain on sale of Transformation bonds $44,000
Journal Entry 5:
October 02, 2018 Cash A/c $6,34,000
To Investment in Transformation Bond $5,90,000
To Gain on sale of Transformation Bonds $44,000
Journal 6: Record of purchased $1,590,000 M&D Corporation 6% Bonds at Face value
Nov 1,2018 Investments in M&D Corportaion Bonds $1,590,000
To Cash $1,590,000
Journal 7: Record of Interest Accruals on American Instruments Bonds
December 31, 2018 Interest Receivable A/c $31,600
To Investment Revenue $31,600
Journal 8: Record of Interest Accurals on M&D Bonds
December 31, 2018 Interest Receivable A/c $13,250
To Investment Revenue $13,250
Journal 9: Record of Fair value Adjustment
Fair Value Adjustment A/c $12,120
Unrealised holding gain- OCI $12,120
$44,000
$109,500
Hope This will clear your doubt and any issue let me know.
Income Statement Investment revenue $65,500 Gain on Sale of Investments$44,000
Net Income$109,500
Statement of Comprehensive Income: Net Income Unrealised holding gain-OCI $12,120 Balance Sheet Assets: Current Assets Interest Receivable $44,850 Investments Investment in Distribution Transformers bonds Shareholder's Equity