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On July 1, 2019, Slick Rocks, Inc., purchased at par $350,000, 6 percent bonds of Sandstone...

On July 1, 2019, Slick Rocks, Inc., purchased at par $350,000, 6 percent bonds of Sandstone Company for the trading securities portfolio. The bonds pay interest each June 30 and December 31. Slick Rocks’ fiscal year ends on December 31. The following information pertains to the price of the Sandstone bonds: Bond Price 12/31/2019 $ 356,000 12/31/2020 352,000 Slick Rocks sold the Sandstone bonds on June 30, 2021, at a price of $353,000. Prepare any journal entries that are required by the facts presented in the case. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

July 1, 2019 / Record the purchase of $350,000 investments at par on July 1, 2019.

December 31, 2019 / Record the interest received for the period ending December 31, 2019.

December 31, 2019 / Recognize the fair value of investments on December 31, 2019.

June 30, 2020 / Record the interest received for the period ending June 30, 2020.

December 31, 2020 / Record the interest received for the period ending December 31, 2020.

December 31, 2020 / Recognize the fair value of investments on December 31, 2020.

June 31, 2021 / Record the interest received for the period ending June 30, 2021.

June 30, 2021 / Record the gain on sale of $353,000 investments on June 30, 2021.

June 30, 2021 / Record the gain on sale of $353,000 investments on June 30, 2021.

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Answer #1

Prepare the following journal entries:

Date Account Title and Explanation Debit Credit
July 1 Short-term Investments - Trading $350,000
2019                  Cash $350,000
To record purchase of trading investments
December 31 Cash (($350,000 × 6%) × 6 ÷ 12) $10,500
2019                  Interest Revenue $10,500
To record interest revenue received
December 31 Fair value adjustment ($356,000 − $350,000) $6,000
2019                 Gain on short-term investments (unrealized, NI) $6,000
To record unrealized gain on investments
June 30 Cash (($350,000 × 6%) × 6 ÷ 12) $10,500
2020 Interest Revenue $10,500
To record interest revenue received
December 31 Cash (($350,000 × 6%) × 6 ÷ 12) $10,500
2020                  Interest Revenue $10,500
To record interest revenue received
December 31 Loss on short-term investments (Unrealized, NI) $4,000
2020 Fair value adjustment ($352,000 − $356,000) $4,000
To record unrealized loss on investments
June 30 Cash (($350,000 × 6%) × 6 ÷ 12) $10,500
2021 Interest Revenue $10,500
To record interest revenue received
June 30 Cash $353,000
2021                            Short-term Investments - Trading $350,000
                           Fair value adjustment ($6,000 − $4,000) $2,000
                           Gain on short-term investments (realized, NI) $1,000
To record sale of trading investments
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