The following selected transactions relate to investment activities of Ornamenta
ID: 2472071 • Letter: T
Question
The following selected transactions relate to investment activities of Ornamental Insulation Corporation. The company buys securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2015.
Received cash dividends of $8,000 on the investment in Distribution Transformers common shares.
Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:
Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:
Prepare the appropriate journal entry for each transaction or event during 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Indicate any amounts that Ornamental Insulation would report in its 2017 balance sheet and income statement as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.)
The following selected transactions relate to investment activities of Ornamental Insulation Corporation. The company buys securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2015.
Explanation / Answer
The journal entries for the transactions undertaken during the year 2017 are as under: On 20th Jan. 2017 M&D Corporation shares are sold by the company for $2,298,000. 20th Jan. 2017 cash Account $2,298,000 Unrealized Gain on available for sale of securities $73,000 Investment-available for sale securities $2,273,000 Realized Gain on available for sale of securities $98,000 (Being sale of availble for sale of securities of M&D Corporation shares) At the end of the year 2016 the market value of shares of M&D Corp. has been increased to $2,273,000 therefore at that time unrealized gain on available for sale of securities has been recorded at $73,000($2,273,000 less $2,200,000) 1st March 2017, Interest received on investment in American Instruments bonds is as under: 1st Mar., 2017 Cash $69,000 Interest on Bonds $69,000 (Being interest on investment in bonds received) 12th Aug. 2017, Company acquired common shares of Vast communication for $810,000. 12th Aug., 2017 Investment-available for sale securities $810,000 Cash $810,000 (Being investment in shares of Vast Communication made) 1st Sept.2017 Interest on bonds of American Instrument received of amounting $69,000. 1st Sept.,2017 Cash $69,000 Interest on Bonds $69,000 (Being interest on investment in bonds received) On 31st Dec. the investment available for sale will be recorded at market prices the difference between cost and market prices would be debited/credited to Unrealized loss/gain on available for sale of securities. Securities of Vast Communications are recorded at cost of $810,000 and at the end of the year 31st Dec. 2017 the market value has been stated as $830,000 therefore the increase in value of $20,000 will be credited to unrealized gain on available for sale of securities. 31st Dec. 2017 Available for sale securities $20,000 Unrealized gain on available for sale securities $20,000 Securities of American Instruments Bonds of $1,336,000 has a market value of $1,316,000 on 31st Dec. 2017 therefore the decrease in value of bonds will be recorded by debititng the unrealized loss on available for sale securities and crediting the Available for sale securities account 31st Dec. 2017 Unrealized loss on available for sale securities $20,000 Available for sale securities $20,000