Question

On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following:

Marsh Company

Partial Balance Sheet

December 31, 2018

1	Assets
2	Investment in Available-for-Sale Securities	$15,000.00
3	Less: Allowance for Change in Fair Value of Investment	(2,000.00)
4		$13,000.00
5	Shareholders’ Equity:
6	Unrealized Holding Gain/Loss	$(2,000.00)

On January 1, 2019, Marsh acquired bonds of Yellow Company with a par value of $16,000 for $16,200. The Yellow Company bonds carry an annual interest rate of 12% and mature on December 31, 2023. Additionally, Marsh acquired Zebra Company bonds with a face value of 18,000 for $17,600. The Zebra Company bonds carry an 8% annual interest rate and mature on December 31, 2028. At the end of 2019, the respective market values of the bonds were: Xenon, $14,000; Yellow, $18,000; and Zebra, $20,000. Marsh classifies all of the debt securities as available-for-sale as it does not intend to hold them to maturity nor does it intend to actively buy and sell them. Assume that Marsh uses the straight-line method to amortize any discounts or premiums.

Required:

1.	Prepare the journal entries necessary to record the purchase of the investments on January 1, 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019.
2.	What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

Answer 1

Preparation of the journal entries necessary to record the purchase of the investments on January 1, 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019. And What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

Refer the below images for more detailed solution with calculations.

Requirement o prepare the purchase of the the journal entries necessary investments on Jan 1, 2014 Dec 31, 2019 and the adjusting to record the annual entry needed interest payments on on Dec 31, 2019: Date Debit credit particulars Investment in Available 2019 for sale or $16000 Jan 1 Securities atc To cash ale $16200 $17600 sale Do Jani Investment in Available for - Securities ate To cash Alc $19600 cash 41500 Dec 31 Ale to or interest & 1500 income 5 $ 15000 10-12 X 121.2 500 Cash Decal AlC To $ 40" Dr Investment in Available for sale Securities Interest income $ 1880 To $16000 * 12 X 12/12 = 1920 $ 200 = 5 years $40 & DU 31 $ 1440 & 40 ** 1480 cash ale or Investment in Available for Alcor cale securites To Interest income $ 18000 48%0x12/12 = 1 1440 $ 400 & 10 years = $40 &

DEC 31 Allowance & 5200 for change in Fair value of investment All DV unrealiaed Holding gain / Loss " Available for sale Securities To $ 5200 Working i change in Security Amortized cost 12/30119 Fair value value (1000) xenon co. & 15000 tou bonds 41940 & 16160 $ 18000 Yellow co. bonds $2360 9 20000 zebra co- bonds $ 17640 4 3200 $ 48800 I 52000 $ 5200 credit adjustment = $3200 reapsired ending debit balance + $2.000 beginning credit balance. on its Dec 31, 249, balance Requirement & what would Sheet related to these marsh disclose investment ? Amount particulars Non- Corrent Assets : § 48800 Securities (at amortized Investment in available for sole Securities (at amortized Cost ) Add: Allowance for change in far value of investment & 3200 Investment in available for sale secorities (at fair value of $2000 Share-holders equity : Accumulated other comprehensive – unrealized holding gain income available for sale securities & 3200