Colah Company purchased $2.3 million of Jackson, Inc. 6% bonds at par on July 1,
ID: 2330681 • Letter: C
Question
Colah Company purchased $2.3 million of Jackson, Inc. 6% bonds at par on July 1, 2018, with interest paid semi-annually. When the bonds were acquired Colah decided to elect the fair value option for accounting for its investment. At December 31, 2018, the Jackson bonds had a fair value of $2.63 million. Colah sold the Jackson bonds on July 1, 2019 for $2,070,000. The purchase of the Jackson bonds on July 1. Interest revenue for the last half of 2018. Any year-end 2018 adjusting entries. Interest revenue for the first half of 2019. Any entry or entries necessary upon sale of the Jackson bonds on July 1, 2019. Required: 1. Prepare Colah’s journal entries for above transaction. 2. Fill out the following table to show the effect of the Jackson bonds on Colah’s net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019.
Explanation / Answer
1. Journal Entries:
Date
Title of Account
Debit
Credit
1/7/2018
Investment in bonds
$2,300,000
Cash
$2,300,000
(To record investment in bonds)
31/12/2018
Cash ($2,300,000*6%*6/12)
$69,000
Interest revenue
$69,000
(To record interest revenue)
31/12/2018
Investment in bonds
$330,000
Unrealized gain
$330,000
(To record year end adjusting entry)
1/7/2019
Cash
$69,000
Interest revenue
$69,000
(To record interest)
1/7/2019
Cash
$2,070,000
Unrealized gain
$330,000
Realized loss on investment
$230,000
Investment in bonds
$2,630,000
(To record sale of bonds)
2. Effect of bonds on net income:
Particulars
2018
2019
Total
Net Income
$69,000
$69,000
$138,000
OCI
Add: Unrealised holding gain on investment
$330,000
$100,000
Less: Realised loss on investment
-$230,000
Comprehensive income
$399,000
-$161,000
$238,000
1. Journal Entries:
Date
Title of Account
Debit
Credit
1/7/2018
Investment in bonds
$2,300,000
Cash
$2,300,000
(To record investment in bonds)
31/12/2018
Cash ($2,300,000*6%*6/12)
$69,000
Interest revenue
$69,000
(To record interest revenue)
31/12/2018
Investment in bonds
$330,000
Unrealized gain
$330,000
(To record year end adjusting entry)
1/7/2019
Cash
$69,000
Interest revenue
$69,000
(To record interest)
1/7/2019
Cash
$2,070,000
Unrealized gain
$330,000
Realized loss on investment
$230,000
Investment in bonds
$2,630,000
(To record sale of bonds)
2. Effect of bonds on net income:
Particulars
2018
2019
Total
Net Income
$69,000
$69,000
$138,000
OCI
Add: Unrealised holding gain on investment
$330,000
$100,000
Less: Realised loss on investment
-$230,000
Comprehensive income
$399,000
-$161,000
$238,000