The following selected transactions relate to investment activities of Ornamenta
ID: 2528697 • 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 $440,000 at face value. Sep. 1 Acquired $1,020,000 of American Instrume nts, 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $485,000 Nov. 1 Purchased $1,600,000 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 M&D; Corporation bonds $ 974,000 1,664,000 (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 investmentsExplanation / Answer
Date Account Title Dr Cr 3 Sep 30 2018 Cash $17,600 Interest revenue $17,600 4 Oct 2 2018 Fair value Adjustment (485000-440000) $45,000 Unrealized holding gain-NI $45,000 5 Oct 2 2018 Cash 485000 Investment in distribution Transformers Bond 440000 Fair value Adjustment 45000 7 Dec 31 2018 Interest receivable 34000 Interest revenue $34,000 (1020000*4/12*10%) 8 Dec 31 2018 Interest receivable 16000 Interest revenue $16,000 (1600000*6%*2/12) 9 Dec 31 2018 Fair value Adjustment $18,000 Unrealized holding gain-NI $18,000 Income statemnt Interest revenue 67600 Unrealized holding gain-NI 45000 Net Income 112600 No effect on statement of comprehensive incomme as these are trading securities Balance sheet Current Assets Interest receivable $50,000 Investments Trading securities (1020000+1600000) 17020000 Add: fair value adjustment $18,000 $17,038,000 Shareholder equity No effect