Problem 12-6A Various transactions related to securities available-for-sale LO12
ID: 2540119 • Letter: P
Question
Problem 12-6A Various transactions related to securities available-for-sale LO12-1 12-41 The following selected transactions relate to investment activities of Omamental Insulation Corporation during 2018. The company buys debt 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. Omamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017 Acquired 6% Distribution Transformers Corporation bonds costing S540.000 at face value. Acquired $1,1 10,000 of American Instruments, 8% bonds at face value. Received semiannual interest payment on the Distribution Transfomers bonds Sold the Distribution Transformers bonds for $579,000. Purchased $1,560,000 of M&D; Corporation 4% bonds costing at face value. Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are: Mar. 31 Sep. 1 Sep. 30 Oct. 2 Nov. 1 Dee. 31 American Instruments bonds M&D; Corporation bonds $1,046,000 $1,635,000 Hint: Interest must be accrued.) Required: I. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. 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
Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Mar Investment in DT Corporation 540,000.00 Cash 540,000.00 (record the common stock accquired of DT Corp.) 1-Sep Investment in AI 1,110,000.00 Cash 1,110,000.00 (record the common stock accquired of AI) 30-Sep Cash 16,200.00 Investment Revenue 16,200.00 (record the dividend received from DT Common Stock) 2-Oct Cash 579,000.00 Investment in DT Corporation 540,000.00 Gain on sale of Investment 39,000.00 (record the sale of DT Common Stock) 1-Nov Investment in M&D Corp. 1,560,000.00 Cash 1,560,000.00 (record the common stock accquired of M&D Corp.) 11,000.00 31-Dec Fair Value Adjustments 11,000.00 Net Unrealized Holding Gain & Losses - OCI (record the unrealized gain on investments) Cost Fair Value Difference AI - Common Stock 1,110,000.00 1,046,000.00 (64,000.00) M& D - Common Stock 1,560,000.00 1,635,000.00 75,000.00 Total 2,670,000.00 2,681,000.00 11,000.00 Answer 2. Income Statement Investment Revenue 16,200.00 Gain on Sale of Investment 39,000.00 55,200.00 Statement of Comprehensive Income Net Unrealized Holding Gains 11,000.00 Balance Sheet Assets Current Assets Securities Available for Sale 2,670,000.00 Add: Fair Value Adjustments 11,000.00 2,681,000.00 Shareholders' Equity Net Unrealized Holding Gains 11,000.00