Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. 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 in years when circumstances warrant. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired 84 Distribution Transformers Corporation bonds costing $400,000 at face value. Sep. 1 Acquired $900,000 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 $425,000. Nov. 1 Purchased $1,400,000 of M&D Corporation 64 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 MSD Corporation bonds $ 850,000 $1,460,000 (Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021, 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 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part 1 No Date General Journal Debit Credit 1 Mar 31 $ 400,000 Investment in Distribution Transformers Bond Cash (To record investment in bonds) $ 400,000 2 Sep 1 $ 900,000 Investment in American Instruments Bond Cash (To record investment in bonds) $ 900,000 3 Sep 30 $ 16,000 Cash Interest Revenue ($400,000*8%*6/12) (To record interest received from bonds) $ 16,000 4 Oct 2 $ 25,000 Fair value adjustment ($425,000-$400,000) Net unrealized Holding gain/Loss (OCI) $ 25,000 5 Oct 2 $ 25,000 Reclassification Adjustment (OCI) Fair Value Adjustment $ 25,000 6 Oct 2 $ 425,000 25,000 Cash Gain on sale of investment (NI) Investment in Distribution Transformers Bond (To record gain in sale of bonds) $ $ 400,000 5 Nov 1 $ 400,000 Investment in M&D Corporation Bond Cash (To record investment in bonds) $ 400,000 6 Dec 31 $ 30,000 Interest Receivable Interest Revenue ($900,000*10%*4/12) (To record interest accured on American Bonds) $ 30,000 Dec 31 $ 4,000 Interest Receivable Interest Revenue ($400,000*6%*2/12) (To record interest accured on M&D Corporation) $ 4,000 Dec 31 $ 10,000 Fair value adjustment Net unrealized Holding gain/Loss (OCI) (To record fair value adjustments) $ 10,000

Accumulated Unrealized Gain/(Losses) Available for Sale Securities Cost Fair Value American Instruments H&D Corporation Total $ 900,000 $ 850,000 $ $ 400,000 $ 460,000 $ $ 1,300,000 $ 1,310,000 $ -50,000 60,000 10,000 Part 2 Income Statement: Interest Revenue ($16,000+$30,000+$4,000) Gain on sale of Investment Net Income $ $ $ 50,000 25,000 75,000 Statement of Comprehensive Income: $ 75,000 Net Income Other Comprehensive Income: Net unrealized Holding gain/Loss on investment Reclassification Adjustment Comprehensive Income $ 35,000 $ 25,000 $ $ 10,000 85,000 Balance Sheet: Assets Current assets: Interest revenue Receivable ($30,000+$4,000) Non Current Assets: Securities available for sale Add: Fair value adjustment $ 34,000 $ 1,300,000 $ 10,000 $ 1,310,000 Shareholder's Equity: Retained Earning Accumulated other comprehensive Income $ $ 75,000 10,000