The following selected transactions relate to investment activities of Ornamenta

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.

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end.
2. 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.

Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $560,000 at face value. Sep. 1 Acquired $1,380,000 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 $610,000. Nov. 1 Purchased $2,200,000 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: Required 1 Required 2 Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, comprehensive income, and 12/31/2018 balance sheet as a result of these investments. (Amo indicated with a minus sign.) Income statement Interest revenue Unrealized holding los Net income Statement of comprehensive income Net income Other comprehensive income Comprehensive income Balance sheet: Assets Current Assets Interest receivable Investments Trading securities - amortized cost Add: Fair value adjustment Shareholders' Equity Retained earnings Required! Required 2

Explanation / Answer

Jounral:

Income statement and balance sheet amounts:

no effect on other comprehensive income.

workings:

Date Account Debit Credit Mar.31 Investment in transformers corporation          5,60,000 Bank          5,60,000 [Trading securities purchased] Nov.1 Investment in M&D corporation        22,00,000 Bank        22,00,000 [Trading securities purchased] Sep.1 Investment in American instruments        13,80,000 Bank [Trading securities purchased] Sep.30 Cash             22,400 Interest revenue             22,400 Oct.2 Cash          6,10,000 Investment in transformers corporation          5,60,000 Gain on sale of trading securities             50,000 Dec.31 Interest receivable             68,000 Interest revenue             68,000 [ interest receivable on M&D and AI] Dec.31 Unrealised holding gain on trading securites allowance             73,000 Unrealised holding gain on M&D bonds             73,000 Unrealised holding loss on trading securites allowance             44,000 Unrealised holding loss on American instruments             44,000

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