Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $400,000 at face value. Sep Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. 1 Acquired $900,000 of American Instruments' 10% bonds at face value. 2 Sold the Distribution Transformers bonds for $425,000. 1 Purchased $1,400,000 of M&D Corporation 6% bonds at face value. Oct Nov Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are 850,000 $1,460,000 American Instruments bonds M&D Corporation bonds (Hint Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end 2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Answer 1

No.	Date	General Journal	Debit	Credit
1	March 31,2018	Investments in Bonds	400,000
		Cash		400,000
2	September 1 , 2018	Investments in Bonds	900,000
		Cash		900,000
3	September 30 , 2018	Cash	16,000
		Interest Revenue		16,000
4	October 2 ,2018	Fair Value Adjustment	25,000
		Gain on Sale of Investments		25,000
5	October 2 , 2018	Cash	425,000
		Investment in Bonds		400,000
		Fair Value Adjustment		25,000
6	November 1,2018	Investment in Bonds	1,400,000
		Cash		1,400,000
7	December 31,2018	Interest Receivable	30,000
		Interest Revenue		30,000
8	December 31,2018	Interest Receivable	14,000
		Interest Revenue		14,000
9	December 31,2018	Fair Value Adjustment	10,000
		Unrealized gain on investments		10,000

Income Statement
Investment Revenue		$ 60,000
Gain On sale of investments		25,000
Unrealized gain on investments		10,000
Net Income		95,000
Statement of comprehensive Income
Net Income		95,000
Other Comprehensive Income		0
Comprehensive Income		95,000
Balance Sheet
Assets
Current Assets
Interest Receivable		44,000
Investments
Trading Securities- amortized cost	2,300,000
Add: Fair Value Adjustment	10,000	2,310,000
Shareholder's Equity
Retained Earnings		$95,000