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Problem 12-5 Various transactions related to trading securities [LO1241,12-3) The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018 The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamentals fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017 Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $400,000 at face value. Sep. 1 Acquired $900,000 of American Instruments 10% bonds at face value. Sep. 30 Received semiannual interest payment Oct. 2 Sold the Distribution Transformers bonds for $425,000 Nov. 1 Purchased $1,400,000 of MSD Corporation 6% bonds at face value Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the on the Distribution Transformers bonds investments are American Instruments bonds M&D Corporation bonds $850,000 $1,460,e00 (Hint: Interest must be accrued)
American Instruments bonds M&D Corporation bonds 850,000 $1,460,000 (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. 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the appropriate journal entry for each transaction or event during 2018, as well as (If no entry is required for a transaction/event, select No journal entry requred in the first account feld any adjusting entries
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Entry on March 31 Date Account title and explanation Ref Debit Credit 31-Mar | 8% Co tion bonds $400,000 Cash To record the acquisition of bonds at ace value) $400,000 Entry on September 1 Date Account title and explanation Ref Debit Credit 1-Sep 10% American bonds $900,000 Cash (To record the acquisition of american instruments at face value) $900,000 Entry on September 30 Date Account title and explanation Ref Debit Credit 30-Sep Cash ($400,000 x 0.082) $16,000 $16,000 Interest revenue To record the interest revenue accrued and received)Entry on October 2 Date Account title and explanation Ref Debit Credit 2-Oct Cash $425,000 8% Co Gain on sale of bonds $400.000 $25,000 ration bonds (To record the sale of bonds for more than face value) Entry on November I Date Account title and explanation RefDebit Credit 1-Nov 16% M&D corporation bonds $1,400,000 Cash (To record the purchase of M&D corporation bonds at face value) $1.400.000 Entry on December 31 Date Account title and explanation Ref Debit Credit 31-DecInterest receivable $30,000 S30,000 Interest revenue (To record the interest accrued on American instruments bonds) Date Account title and explanation Ref Debit Credit 31-DecInterest receivable $14,000 $14,000 Interest revenue To record the interest accrued on M&D corporation bonds)Particulars Amount Interest on 10% American instruments bonds ($900.000 × 10% × 4/12) Interest on 6% M&D corporation bonds ($1.400.000 6% 2/12 Total interest revenue earned $30,000 $14,000 $44,000 Entry on December 31 Date Account title and explanation RefDebit Credit 31-Dec M&D Corporation bonds $60,000 10% American instruments bonds Fair value adjustment $50,000 $10,000 (To adjust the market values of bonds) 2. Calculate the amounts to be reported in the income statement and the balance sheet as shown below: Income statement Interest revenue $60,000 Comprehensive income statement Fair value adjustment $10,000Balance sheet Assets Investments $2,310,000 Shareholders equity Accumulated other comprehensive income $10,000 Working note: Particulars Amount $850,000 10% American instruments $900,000 $50,000) M&D Corporation bonds ($1,400,000$60,000) Total value of investments $1,460,000 $2,310,000

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