Question

Colah Company purchased $1.6 million of Jackson, Inc., 6% bonds at par on July 1, 2018, with interest paid semi-annually. Colah determined that it should account for the bonds as an available for sale investment. At December 31, 2018: the Jackson bonds had a fair value of $1.86 million Colah sold the Jackson bonds on July 1, 2019 for $1.440,000 a. The purchase of the Jackson bonds on July 1 b. Interest revenue for the last half of 2018 C. Any year-end 2018 adjusting entries. d. Interest revenue for the first half of 2019. e. Any entries necessary upon sale of the Jackson bonds on July 1, 2019, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. Required: 1. Prepare Colah's journal entries for above transaction 2. Fill out the following table to show the effect of the Jackson bonds on Colah's net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019.

Answer 1

Date	Account Name	Debit	Credit
1-Jul-18	6% bonds available for sale	$1,600,000
	Cash		$1,600,000
	(record entry for purchase of 6% bonds)
31-Dec-18	Cash	$48,000
	Interest Income($1,600,000×6%×0.5)		$48,000
	(record entry for interest income for second half)
31-Dec-18	Fair value adjustment account-Available for sale	$260,000
	Unrealized holding gain on investment ($1,860,000-$1,600,000)		$260,000
	(record entry for adjusting the bonds to market value)
31-Dec-19	Cash	$48,000
	Interest Income($1,600,000×6%×0.5)		$48,000
	(record entry for interest income for first half)
31-Dec-19	Cash	$1,440,000
	Unrealized holding gain on investment	$260,000
	Realized loss on investment	$160,000
	6% bonds available for sale		$1,860,000
	(record entry for sale of bonds)

2. The effect of bonds on net income:
Particulars	2018	2019	Total
Net income	$48,000	$48,000	$96,000
Other comprehensive income:			$100,000
Add: Unrealized holding gain on investment	$260,000
Less: Realized loss on investment		($160,000)
Comprehensive income	$308,000	($112,000)	$196,000