Question

Colah Company purchased $2.7 million of Jackson, Inc., 5% bonds at par on July 1, 2018, with interest paid semi-annually. Colah determined that it should account for the bonds as an available-for-sale investment. At December 31, 2018, the Jackson bonds had a fair value of $3.07 million. Colah sold the Jackson bonds on July 1, 2019 for $2,430,000.

1. The purchase of the Jackson bonds on July 1.
2. Interest revenue for the last half of 2018.
3. Any year-end 2018 adjusting entries.
4. Interest revenue for the first half of 2019.
5. Any entries necessary upon sale of the Jackson bonds on July 1, 2019, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale.

Required:
1. Prepare Colah’s journal entries for above transaction.
2. Fill out the following table to show the effect of the Jackson bonds on Colah’s net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019.

	2018 2019 Total Net Income $0 OCI $0 Comprehensive Income $0

Answer 1

1. Prepare Colah’s journal entries for above transaction.

Date	Accounts Title	Debit	Credit
Jul. 01, 2018	Available for sale security	$2,700,000
	Cash		$2,700,000
Dec. 31, 2018	Cash [$2,700,000 × 2.5%]	$67,500
	Interest Income		$67,500
Dec. 31, 2018	Available for sale security	$370,000
	Unrealized gain or loss-OCI		$370,000
	[$3,070,000 - $2,700,000]
Jun. 30, 2019	Cash [$2,700,000 × 2.5%]	$67,500
	Interest Income		$67,500
Jun. 30, 2019	Unrealized gain or loss-OCI	$640,000
	Available for sale security		$640,000
	[$3,070,000 - $2,430,000]
Jun. 30, 2019	Realized gain or loss on sale of AFS	$270,000
	Unrealized gain or loss-OCI		$270,000
	[$640,000 - $370,000]
July. 01, 2019	Cash	$2,430,000
	Loss-NI	$270,000
	Available for sale security		$2,700,000

________________________________________________________________

2. Fill out the following table to show the effect of the Jackson bonds on Colah’s net income, other comprehensive income, and comprehensive income for 2018, 2019, and cumulatively over 2018 and 2019.

Particulars	2018	2019	Total
Net Income	$67,500	($202,500)	($135,000)
		($67500 - $270000)
Other comprehensive income	$370,000	($370,000)	$0
		($370,000 - $640,000)
Comprehensive income	$437,500	($572,500)	($135,000)