Question

Problem 12-5 (Algo) Various transactions related to trading securities (LO12-1, 12-3] 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 $600,000 at face value. Sep. 1 Acquired $1,500,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $670,000. Nov. 1 Purchased $2,400,000 of M&D Corporation 6% bonds 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 M&D Corporation bonds $1,460,000 $2,480,000 (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

Mar-311 DY Answer! Journal entries: THE Debit credit Date particulars 2021 Investment in Distribution Transformers o r - bonds Ale $600,000 To cash $ 600000 being purchase of investment at fair valy Sep Investment in American Instruments cul $ 1.500,000 . To fash $1,500,000 Feing purchase of investment at fair value] sep-30 Cash Afc 600.000 % 8% 6he] DX $ 24,000 $24,000 TO Interest Revenue. Being record Interest revenue] che fair value adjustment Ne $70,000 $70,000 To unrealized holding gain e $670,000-$ 600,000 Being investment to fair value] cash ale or $670,000 To Investment in Distribution |$600,000 B Transformers bonds $70,000 TO Fair value adjustments Being Sale of investiment] NO-1 Investment in Heo corporation bonds weon H2,400000 s2 400.000 1. To cash Being purchase of investment at fair wale Ipec.31 Interest Recexualle Ale $50,000 - To Interest Rovence $50.000 $1509000 x103 417 Being Interest revenue on American investment bond Interest Receivable Ale or $24,000 TO Interest Revenue $24,000 [$,400,000* 6%/12] Being Interest Revence on MED investment bonds] 1 Fair value adjustment Ale or $40,000 $40.000 To unrealized holding gain Being Adjustment of remaining investment at fair value]

- working Nore Indication of amount in respective statement :- I cost (4) Fair valsts un replized American Instrument Bonds $1,500,000 $1460,000 $ H0.000) MD Corporation Bonds $2,400,000 $2,480,000 $80,000 Total $3,900,000 $3,940,000 $40,000 2) Income statements - particulars Amount Amount Interest Revencie ſ 24,000+$24000+$50000 $98000 Add: Undealized holding gain $ 70000+$49000 $110,000 Net Income $208000 statement of comprehensive sklementin Net Income $208,000 other comprehensive income - Total $ 208, 000 Balance sheets Interest Receivable $74,000 Investment in bonds ddi fair value adjustment $3909000 $ 49000 3949000 Retained earnings 208,000.
2nd Answer given in the above problem