The following selected transactions relate to Investment activities of Ornamenta
ID: 2556861 • Letter: T
Question
The following selected transactions relate to Investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securitles, Intending to profit from short-term differences In price and malntalning them In an active trading portfolio. Ornamentals fiscal year ends on December 31. No Investments were held by Ornamental on December 31, 2017 Mar. 31 Acquired 8% Distribution Transformers Corp ration bonds costing $48e,eee at face value. Sep 1 Acquired $1,148,88e of American Instruments' 1e% bonds at face value. Sep. 38 Received semiannual interest payment on the Distribution Transforners bonds Oct. 2 Sold the Distribution Transformers bonds for $545,80e Nov. 1 Purchased $1,800 ,eee 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 Instrunents bonds MSD Corporation bonds $1,098,888 $1,868,8e Hint Interest must be accrued.) Required: 1. Prepare the approprlate journal entry for each transaction or event during 2018, as well as any adjusting entrles necessary at year end. 2 Indicate any amounts that Ornamental Insulation would report In Its 2018 Income statement, 2018 statement of comprehenslve Income, and 12/31/2018 balance sheet as a result of these Investments.Explanation / Answer
1. Journal Entries
2.
Date Particulars Debit Credit 31-Mar Investment in Distribution Transformers Corporation ….dr $480,000 To Cash a/c $480,000 (Being investment in the shares of DT Corporations recorded) Sep. 1 Investment in American Instruments…….dr $1,140,000 To Cash a/c $1,140,000 (Being bonds acquired in American Instruments) Sep. 30 Cash a/c………….dr To Investment Revenue (Being revenue received in cash from the investments) Oct.2 Cash a/c…………..dr 455,000 To Investment in DT 420,000 To Gain on sale of Investment 35,000 (Being sale of DT investments on profit recorded) Nov.1 Investment in M&D Corporation 1,500,000 To Cash a/c 1,500,000 (Being shares acquired in M&D corp recorded) Dec.31 Investment Revenue Receivable 32,000 To Investment Revenue 32,000 (Being accrued interest for four months on investments in American Instruments recorded….($960,000*10%*4/12)) Dec.31 Fair Value Adjustment 14,000 To Net Unrealized holding gains and losses 14,000 (Being unrealised gain on investmenet recorded) ($960,000+$1,500,000)-($912,000+$1,562,000)