Question

The information below relates to Wynn Corporation's investments classified as trading securities in 2017:

1/1/17 Purchased $100,000 par value of Barr Company bonds at 98 with an annual yield of 10%. The bonds pay interest annually on 12/31. The annual interest rate is 9%.

9/5/17 Purchased 3,200 shares of Pine, Inc. common stock for $30 per share.

12/31/17 Received $9,000 interest for investments in Barr Company bonds for 2017 (note: the discount of the bond investments should be amortized using the effective interest method when recording the receipt of $9,000 interest).

12/31/17 The market prices of the investments at 12/31/2017 were: Pine Inc. common stock $25 per share and Barr company bonds, 99. The fair value adjustment account balance was a credit of $300 prior to the fair value adjustment on 12/31/2017

7/2/18 Wynn sold half of Pine, Inc. common stock for $50,000.

Required: a. Prepare journal entries for the transactions occurred in 2017 (i.e., transactions on 1/1, 9/5 and 12/31) and make the appropriate entry to apply the fair market valuation for these investments on 12/31/2017.

b. Record the transaction of 7/2/2018

Answer 1

Jouranl Entries in the books of Wynn Corporation

Date	Particulars	Amount in $	Amount in $
1/1/17	Investment in Bonds of Barr Company Account                   Dr. (Par value of bond is $100,000; annual interest rate is 9%)                 To Bank Account ($100,000*$98÷$100)	98,000	98,000
9/5/17	Investment in shares of Pine, Inc Account                              Dr. (3200 shares at 30 per shares)                 To Bank Account ($100,000*$98÷$100)	96,000	96,000
12/31/17	Bank Account (Interest income received from Bond)        Dr. Investment in Bonds of Barr Company Account                   Dr. (Amortization of discount on bond)                 To Income from Bond Account ($98,000*10%)	9,000 800	9,800
12/31/17	Investment in Bonds of Barr Company Account                   Dr. (Par value of bond is $100,000; annual interest rate is 9%) Fair Value Adjustment Account                                                  Dr. Profit and Loss Account                                                                 Dr.                 To Investment in shares of Pine, Inc Account	200 300 15,500	16,000
7/2/18	Bank Account                                                                                    Dr.                 To Investment in shares of Pine, Inc Account                 To Profit and Loss Account (Profit on sale)	50,000	40,000 10,000