Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

Mar.		31		Acquired 7% Distribution Transformers Corporation bonds costing $440,000 at face value.
Sep.		1		Acquired $960,000 of American Instruments’ 9% bonds at face value.
Sep.		30		Received semiannual interest payment on the Distribution Transformers bonds.
Oct.		2		Sold the Distribution Transformers bonds for $469,000.
Nov.		1		Purchased $1,440,000 of M&D Corporation 5% bonds costing at face value.
Dec.		31		Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:

American Instruments bonds	$	906,000
M&D Corporation bonds	$	1,504,000

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Answer 1

Date	Account Title & Description		Debit	Credit
31-Mar	7% Corporation Bond		$        440,000
	Cash			$        440,000
	(To record the acquisition of bonds at face value)
01-Sep	9% American Bond		$        960,000
	Cash			$        960,000
	(To record the acquisition of american instruments at face value)
30-Sep	Cash($440000*7%*6/12)		$          15,400
	Interest Revenue			$          15,400
	(To record the interest revenue accrued and received)
02-Oct	cash		$        469,000
	7% Corporation Bond			$        440,000
	Gain on sale of bonds			$          29,000
	(Being bonds sold)
01-Nov	5% M & D Corporation Bonds		$    1,440,000
	Cash			$    1,440,000
	(Being Bonds purchased)
31-Dec	Intrest Receivable ($960000*9%*4 month /12)		$          28,800
	Interest Revenue			$          28,800
	(To record the interest revenue accrued and received on 9% American Bond)
31-Dec	Intrest Receivable ($1440000*5%*2 month /12)		$          12,000
	Interest Revenue			$          12,000
	(To record the interest revenue accrued and received on 5% M & D Corporation Bonds)
31-Dec	5% M & D Corporation Bonds		$          64,000
	9% American Bond			$          54,000
	Fair Value adjuistement			$          10,000
	(Bing Market value of bonds adjusted
		FMV	Cost	Different
	9% American Bond	906000	$        960,000	$        (54,000)
	5% M & D Corporation Bonds	1504000	$    1,440,000	$          64,000
2	Income Statement
	Interest Revenue		$          56,200
	Comprehensive Income Statement
	Fair Value adjustment		$          10,000
	Balance Sheet
	Asset
	Investment [$906000+$1504000]		$    2,410,000
	Shareholders Equity
	Accumulated Other Comprehensive Income