Question

Problem 17-07

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The following information relates to the debt securities investments of Culver Company.

1.		On February 1, the company purchased 11% bonds of Gibbons Co. having a par value of $310,800 at 100 plus accrued interest. Interest is payable April 1 and October 1.
2.		On April 1, semiannual interest is received.
3.		On July 1, 8% bonds of Sampson, Inc. were purchased. These bonds with a par value of $192,000 were purchased at 100 plus accrued interest. Interest dates are June 1 and December 1.
4.		On September 1, bonds with a par value of $56,400, purchased on February 1, are sold at 98 plus accrued interest.
5.		On October 1, semiannual interest is received.
6.		On December 1, semiannual interest is received.
7.		On December 31, the fair value of the bonds purchased February 1 and July 1 are 94 and 92, respectively.

(a)

Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are available-for-sale securities. (Note to instructor: Some students may debit Interest Receivable at date of purchase instead of Interest Revenue. This procedure is correct, assuming that when the cash is received for the interest, an appropriate credit to Interest Receivable is recorded.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.

Answer 1

Date	Account Titles	Debit	Credit
1-Feb	Debt Investment (Available for Sale) - Gibbons	$    310,800.00
	Interest Revenue (4/12 X .11 X $310,800)	$      11,396.00
	Cash		$ 322,196.00
1-Apr	Cash (6/12 X .11 X $310,800)	$      17,094.00
	Interest Revenue		$   17,094.00
1-Jul	Debt Investment (Available for Sale) Sampson	$    192,000.00
	Interest Revenue (1/12 X .08 X $192,000)	$        1,280.00
	Cash		$ 193,280.00
1-Sep	Cash (56400 x 98%) + (56,400 x 5/12 x .11)	$      57,857.00
	Loss on Sale of Investment	$        1,128.00
	Debt Investment (Available for Sale) -Gibbons		$   56,400.00
	Interest Revenue (56,400 x 5/12 x .11)		$     2,585.00
1-Oct	Cash (6/12 X .11 X ($310,800 - 56400)	$      13,992.00
	Interest Revenue		$   13,992.00
1-Dec	Cash	$        7,680.00
	Interest Revenue (6/12 X .08 X $192,000)		$     7,680.00
31-Dec	Interest Receivables (6996 + 1280)	$        8,276.00
	Interest Revenue		$     8,276.00
	(3/12 X .11 X ($310,800 - 56400)	$        6,996.00
	(1/12 X .08 X $192,000)	$        1,280.00
31-Dec	Unrelized Holding Gain /Loss - Equity	$      30,624.00
	Fair Value Adjustment (Available for Sale)		$   30,624.00
	Cost	Fair value	Unrelized Gain /(loss)
Gibbons	$                                                                                  254,400.00	$    239,136.00	$ (15,264.00)
Sampson	$                                                                                  192,000.00	$    176,640.00	$ (15,360.00)
Total			$ (30,624.00)