Question

Question 1:

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2021 and the first week of 2022.

2021
Dec.		17		Purchased 135 Grocers’ Supply Corporation bonds at par for $607,500.
		28		Received interest of $3,400 from the Grocers’ Supply Corporation bonds.
		31		Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation bonds. The market price of the bond was $5,000 per bond.
2022
Jan.		5		Sold the Grocers' Supply Corporation bonds for $641,250.

Required:
1. Prepare the appropriate journal entry or entries for each transaction.
2. Indicate any amounts that Rantzow-Lear Company would report in its 2021 balance sheet and income statement as a result of this investment.

Answer 1

Answer 1:

Debit Credit Date Accounts Title and Explanation 2021 Dec. 17 Investment in Trading Securities Cash (to record purchase of Bonds) $607,500 $607,500 $3,400 Dec. 28 Cash Interest Revenue (to record interest revenue) $3,400 $67,500 Dec. 31 Fair Value Adjustment - Trading securities Unrealized holding Gain or Loss (to record fair value adjustment) $67,500 Date Accounts Title and Explanation Debit Credit 2022 Jan. 05 $641,250 $33,750 Cash Realized Loss - Trading Securities Investment in Trading Securities Fair Value Adjustment - Trading securities (to record purchase of Bonds) $607,500 $67,500

Answer 2:

2021 income statement:

Rantzow-Lear Company Income Statement For the Year Ended December 31, 2012 Revenue: Interest Revenue Unrealized holding Gain $3,400 $67,500

2021 balance sheet:

Rantzow-Lear Company Balance Sheet As of Year ended December 21, 2021 Assets Investment in Tranding Scecurities $675,000