The following selected transactions relate to investment activities of Ornamenta
ID: 2549906 • 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 $500,000 at face value. Sep. 1 Acquired $1,200,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $575,000. Nov. 1 Purchased $1,900,000 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 $ 1,160,000 M&D Corporation bonds $ 1,970,000 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. (Amounts to be deducted should be indicated with a minus sign.)
Explanation / Answer
. Journal Entry Working Note for Calculation of Revaluation Gain/ (Loss) on Investment Date Account Desription , Title Debit Credit S. No Investment Market Price Purchase price Revaluation Gain/(Loss) 31/03/2018 8% Distribution Transformer Corporation Bond $500,000 1 10% American Instrument Bond $1,160,000 $1,200,000 -$40,000 Cash $500,000 2 6% M&D Corporation Bond $1,970,000 $1,900,000 $70,000 To Record investment made in DTC Bond Total $3,130,000 $3,100,000 $30,000 01-Sep 10% American Instrument Bond $1,200,000 Working Note for Calculation of Accrued Interest Cash $1,200,000 S. No. Detail Amount To Record Investment made in AIB a. Accrued Interest on Americal Instrument Bond $40,000.00 ($1200000*10%*4/12) 30-Sep Cash $20,000 b. Accrued Interest on M&D Corporation Bond $19,000.00 Interest Income ($500000*4%) $20,000 ($1900000*6%*2/12) To Record Interest Received on DTC Bond Total $59,000.00 02-Oct Cash $575,000 Comprehensive Income Statement 8% Distribution Transformer Corporation Bond $500,000 Detail Amount Gain(Loss) on sale of Bond $75,000 Interest Income $79,000 To Record sale of DTC Bond Revaluation Gain/(Loss) on Investment $30,000 Gain/(Loss) on Sale of Bond $75,000 01-Nov 6% M&D Corporation Bond $1,900,000 Total $184,000 Cash $1,900,000 To Record Investment made in M&D C Bond Balance Sheet Detail Amount 31-Dec Revaluation Gain/(Loss) on Investment $40,000 Asset 10% American Instrument Bond $40,000 Current Asset To Record Revaluation of invenstment Interest Receivable $59,000 31-Dec 6% M&D Corporation Bond $70,000 Investment in Bond $3,130,000 Revaluation Gain/(Loss) on Investment $70,000 To Record Revaluation of invenstment 31-Dec Interest Receivable $59,000 interest Income $59,000 To Record accrued Interest Income 31-Dec Interest Income 79000 Revaluation Gain/(Loss) on Investment 30000 Gain/(Loss) on Sale of Bond 75000 Comprehensive Income Statement 184000 To close all income/Gain /Loss in Income Statement