Question

Check my work Exercise 12-7 (Algo) Various transactions relating to trading securities [LO12-1, 12-3] Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2021 and the first week of 2022. 2021 Dec. 17 Purchased 135 Grocers' Supply Corporation bonds at par for $607,500. 28 Received interest of $3,400 from the Grocers' Supply Corporation bonds. 31 Recorded any necessary adjusting entry relating to the Grocers' Supply Corporation bonds. The market price of the bond was $5,000 per bond. 2022 Jan. 5 Sold the Grocers' Supply Corporation bonds for $641,250. Required: 1. Prepare the appropriate journal entry or entries for each transaction. 2. Indicate any amounts that Rantzow-Lear Company would report in its 2021 balance sheet and income statement as a result of this investment.

Answer 1

Answer
Requirement 1
Date	Accounts	Debit	Credit
2021
Dec-17	Investment in grocers supply bonds	$     6,07,500
	cash		$     6,07,500
	(To record Investment in grocers )
Dec-28	Cash	$          3,400
	Interest revenue		$          3,400
	( To record Interest revenue)
Dec-31	Fair value adjustment	$        67,500
	Unrealised holding gain-NI (5000-607500/135)*135		$        67,500
	(To record Unrealised holding gain)
2022
Jan-05	Unrealised holding Loss-NI	$        33,750
	Fair value adjustment(675000-641250)		$        33,750
	(To record Unrealised holding loss)
Jan-05	Cash	$     6,41,250
	Fair value adjustment (641250-607500)		$        33,750
	Investment in grocers supply bonds		$     6,07,500
	(To record sold of grocers bond)

Requirement 2
Balance sheet (short term investment)
	Trading securities		$     6,75,000
Income statement
	Interest revenue		$          3,400
	Unrealised holding gain		$        67,500

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