Question

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price, and holds these investments in its trading portfolio. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2021 and the first week of 2022.

2021
Dec.		17		Purchased 190 Grocers’ Supply Corporation bonds at par for $475,000.
		28		Received interest of $5,600 from the Grocers’ Supply Corporation bonds.
		31		Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation bonds. The market price of the bond was $3,000 per bond.
2022
Jan.		5		Sold the Grocers' Supply Corporation bonds for $541,500.

Required:
1. Prepare the appropriate journal entry or entries for each transaction.
2. Indicate any amounts that Rantzow-Lear Company would report in its 2021 balance sheet and income statement as a result of this investment.

Answer 1

Solution: 1
		Journal Entries
	Sr. No.	Date	Account Title and explanation	Debit	Credit
	1	Dec 17. 2021	Investment in Grocers Supply Corpo. Bond	$               4,75,000
			Cash		$                 4,75,000
	2	Dec 28. 2021	Cash	$                     5,600
			Interest Revenue		$                       5,600
	3	Dec 31. 2021	Investment in Grocers Supply Corpo. Bond	$                  95,000
			Unrealised Holding Gain - NI		$                     95,000
	4	Jan.05 2022	Cash	$               5,41,500
			Unrealised Holding Gain - NI	$                  28,500
			Investment in Grocers Supply Bond		$                 5,70,000
		Working Notes:
			Calculation of Market value of investment as on December 31 2021
			Market Value of one Bonds	$                     3,000
			Total Bonds	$                        190
			Market Value of Bonds ($ 5000 X 145)	$               5,70,000
			Less: Investment Value	$               4,75,000
			Unrealised gain on investment	$                  95,000
	Solution: 2
			Balance Sheet (Short Term Investment)
			Trading Securities	$               5,70,000
			Income Statement
			Interest Revenue	$                     5,600
			Unrealized Holding Gain	$                  95,000