Question

Exercise 12-7 Various transactions relating to trading securities (LO12-1, 12-3] Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2018 and the first week of 2019. eBook 2018 Dec. 17 Purchased 100 Grocers' Supply Corporation bonds at par for $350,000. 28 Received interest of $2,800 from the Grocers' Supply Corporation bonds. 31 Recorded any necessary adjusting entry relating to the Grocers' Supply Corporation bonds. The market price of the bonds were $4,000 per bond. 2019 Jan. 5 sold the Grocers' Supply Corporation bonds for $395, eee. 000 Hint Print Required: 1. Prepare the appropriate journal entry or entries for each transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) eferences View transaction list Journal entry worksheet 1 2 3 4 5 Purchased 100 Grocers' Supply Corporation bonds at par for $350,000. Note: Enter debits before credits. General Journal Debit Credit Date December 17, 2018 Record entry Clear entry View general Journal 2. Indicate any amounts that Rantzow-Lear Company would report in its 2018 balance sheet and income statement as a result of this investment Balance Sheet (short-term investment): Income Statement

Answer 1

Requirement 1

Date	Particulars	Debit ($)	Credit ($)
Dec 17 ,2018	Investment in Grocer’s bonds	350,000
	Cash		350,000
	( To record investment in bonds)
Dec 28, 2018	Cash	2,000
	Interest (investment) revenue		2,000
	(To record receipt of interest)
Dec 31,2018	Fair value adjustment (4000 X 100,000 – 350,000)	50,000
	Unrealized holding gain		50,000
	(To record adjusting entry related to bonds value)
Jan 1,2019	Unrealized holding gain (395,000 -400,000)	5,000
	Fair value adjustment		5,000
	(To record fair value adjustment on sales)
	Cash	395,000
	Fair value adjustment		45,000
	Investment in Grocer’s bonds		350,000
	(To record the sale)

Note that on Jan 1, 2019 , the bond has been valued downwards and hence the unrealized holding gain on Dec 31,2018 shall be reversed to extent of $ 5,000.

Requirement 2

Balance sheet

Trading securities
Cost	350,000
Fair value adjustment	50,000
Short term investment	400,000

Income statement

Investment Revenue	2,000
Unrealized holding gain	50,000
	52,000

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