Question

On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following:

Marsh Company

Partial Balance Sheet

December 31, 2018

1	Assets
2	Investment in Available-for-Sale Securities	$15,000.00
3	Less: Allowance for Change in Fair Value of Investment	(2,000.00)
4		13,000.00
5	Shareholders’ Equity:
6	Unrealized Holding Gain/Loss	$(2,000.00)

On January 1, 2019, Marsh acquired bonds of Yellow Company with a par value of $16,000 for $16,200. The Yellow Company bonds carry an annual interest rate of 12% and mature on December 31, 2023. Additionally, Marsh acquired Zebra Company bonds with a face value of 18,000 for $17,600. The Zebra Company bonds carry an 8% annual interest rate and mature on December 31, 2028. At the end of 2019, the respective market values of the bonds were: Xenon, $14,000; Yellow, $18,000; and Zebra, $20,000. Marsh classifies all of the debt securities as available-for-sale as it does not intend to hold them to maturity nor does it intend to actively buy and sell them. Assume that Marsh uses the straight-line method to amortize any discounts or premiums.

Required:

1.	Prepare the journal entries necessary to record the purchase of the investments in 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019.
2.	What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

CHART OF ACCOUNTS
Marsh Company
General Ledger
ASSETS 111 Cash 114 Investment in Available-for-Sale Securities 119 Allowance for Change in Fair Value of Investment 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings 339 Unrealized Holding Gain/Loss: Available-for-Sale Securities	REVENUE 411 Sales Revenue 431 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare the journal entries necessary to record the purchase of the investments in 2019, the annual interest payments on December 31, 2019. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13		Adjusting Entries
14
15

What would Marsh disclose on its December 31, 2019, balance sheet related to these investments? Additional Instructions

Marsh Company

Partial Balance Sheet

December 31, 2019

1	Assets:
2
3
4
5	Shareholders’ Equity:
6

Answer 1

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