QUESTION 1 During 2018, Largent Enterprises purchased bonds as follows May 17, P

Question

QUESTION 1 During 2018, Largent Enterprises purchased bonds as follows May 17, Purchased 100 Nugent bonds for $800 per bond July 12, Purchased 40 Alfredo bonds at S600 per bond, plus a $600 brokerage commission. Largent accounts for these investments as securities available for sale. At December 31, 2018, the market values of the securities were as follows: Market Value per Bond Security Nugent Alfredo $720 $640 Required (1.) Prepare the journal entries to record the acquisition of the two investments. (2.) Prepare any necessary adjusting entries assuming the bonds are both classified as available for sale securities T T I Arial Path QUESTION 2

Explanation / Answer

Answer to part (1):

On May 17, 2018: Nugent Bond A/c Dr $ 80000

To Bank A/c $ 80000

(Being 100 Nugent Bonds purchased for $ 800 each as investment)

On July 12, 2018: Alfredo Bond A/c Dr $ 24600

To Bank A/c $ 24600

(Being 40 Alfredo Bonds purchased for $600 each, plus $600 as Brokerage Commission. That is [(40 X 600) + 600] = 24600)

Answer to Part (2):

Available for Sale Investments: This investment is initially recorded at cost. At the end of each subsequent accounting period, adjust the recorded investment to its fair value as of the end of the period. Any unrealized holding gains and losses are to be recorded in other comprehensive income until they have been sold.

On Dec 31, 2018: Profit & Loss A/c Dr   $ 8000

To Nugent Bond   $8000

(Being notional loss of $ 8000 i.e. (800-720)*100 adjusted)

On Dec 31, 2018: Alfredo Bond Dr   $ 1000

To Profit & Loss A/c $ 1000

(Being notional gain of $ 1000 i.e. [24600-(640*40)] adjusted)

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