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 $550,000 at face value. Sep. 1 Acquired $1,350,000 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 $595,000. Nov. 1 Purchased $2,150,000 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 $1,305,000 $2,225,000 (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. 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 2021, as well as any adjusting entries necessary at year end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Date Account title Debit Credit 31 los sl. corporation bonds Alor $ 5,50,000 $5,59,000 The cash (To record the acquisition of H bonds at FV) 104. American bonds to $13,50,000 - oiloa $13,50,000 Cash To record the acquisition - of bonds at fv) 30.09 $22000 Cash Aic C$ 5,50,000 X 0.08x6m )$22000 Interest revenue (To record the interest revenue accrued & received) $5,95,000 o2l10 $ 45,000 Cash 8.1. Corporation bonds $ 5,59000 Gain on sale of bonds (To record the sale of bonds for more Than FV) 6% M&D corporation $ 2150000 all $ 2150000 Cash (To record the purchase of M&D corporation bonds at fv)

31112 $45000 $45000 Interest receivable - Interest revenue C$ 1,350,000 x 108.42) (To record int on Americano Interest receivable - Interest revenue instruments) 2 $ 21500 $&5DO C$ 3,150,000 * 61.* 2112) (To record the int accrued on MED corporation bonds) $45000 $ 30000 31112 M&D corporation bonds $75000 10% american instruments . bonds fair value adjustment (To adjust the market value of bonds) Required Calculate the amounts to be reported in the income statement & the balance sheet as shown below - Income statement $88500 Interest revenue Comprehensive income statement adjustment $ 30000 fair value

Balance Sheet Assets Investment (1305000+ 222 5000) Shareholders equity Accomulated other comprehensive $ 3530000 income $ 30000