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The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity. but to have them available for sale in years when circumstances warrant. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired 84 Distribution Transformers Corporation bonds costing $400,000 at face value. Sep. 1 Acquired $900,000 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 $425,000. Nov. 1 Purchased $1,400,000 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 MSD Corporation bonds $ 850,000 $1,460,000 (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. For any sales, prepare entries to update the fair-value adjust ent, record any reclassification adjustment, and record the sale. 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 and For any sales, prepare entries to update the fair value adjustment, record any reclassification adjustment, and record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list

Answer 1

Journal Entries   

Date	Particulars	Debit	Credit
Mar31	8% Distribution transfomer corporation bonds A/c Dr.	$4,00,000
	To Cash A/c		$4,00,000
Sep1	10% American Bonds A/c Dr.	$9,00,000
	TO Cash A/c		$9,00,000
Sep 30	Cash A/c Dr.	$16,000
	To Interest on Distribution Transformer bonds A/c		$16,000
Oct 2	Cash A/c Dr.	$425,000
	To Distribution Transformer Bond A/c		$4,00,000
	To Profit on sale of investments		$25,000

  

Nov 1	6% MSD Corporation Bonds A/c Dr.	$ 14,00,000
	To Bank A/c		$ 14,00,000
Dec 31	Accrued Income A/c Dr.	$ 44,000
	To Interst on American Bonds A/c		$ 30,000
	to Interest on MSD bonds A/c		$ 14, 000

INCOME STATEMENT

Interest on investments
Distribution transformer bonds	$16000
American Bonds	$ 30,000
MSD Bond	$ 14, 000	$ 60,000
Profit on sale of Investment		$ 25, 000
		$ 85000
STATEMENT OF COMPREHENSIVE INCOME Other comprehensive Income
Unrealized loss on American Bonds	$ (50,000)
Unrealized gain on MSD Bonds	$ 60,000	10,000

Balance Sheet

Assets
Non Current Assets
Available for sale Bonds
American Bonds	$ 8,50,000
MSD Bonds	$14,60,000	$ 23,10,000
Current Assets
Accrued INcome		$ 44,000
SHAREHOLDERS EQUITY
Retained earning		$ 85,000
Accumulated Other Comprehensive Income		$ 10,000