Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar.		31		Acquired 8% Distribution Transformers Corporation bonds costing $430,000 at face value.
Sep.		1		Acquired $990,000 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 $470,000.
Nov.		1		Purchased $1,550,000 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	$	943,000
M&D Corporation bonds	$	1,613,000

(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.
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.

• Record the acquisition of 8% Distribution Transformers Corporation bonds costing $430,000 at face value.

Note: Enter debits before credits.

Record the acquisition of $990,000 of American Instruments’ 10% bonds at face value

Record the entry to adjust to fair value on the date of sale of the Distribution Transformers bonds.Record the entry for the semiannual interest received on the Distribution Transformers bonds.

Record the entry for sale of Distribution Transformers bonds for $470,000.

Record the acquisition of $1,550,000 of M&D Corporation 6% bonds at face value.

Record the interest accrual for American Instruments bonds.

Record the interest accrual for M&D bonds.

Record the entry to adjust fair value of the investments at year-end.

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. (Amounts to be deducted should be indicated with a minus sign.)

	Income statement: Net income Statement of comprehensive income: Comprehensive income Balance sheet: Assets Current Assets Investments Shareholders’ Equity

Answer 1

Lo fon Alignment L76 - X fo Ornamental Insulation Corporation Statement of ComprehensiveIncome for the year ended 31st Dec,2021 Interest on Bonds- 8% Distribution Transformer Bonds $ 10% American Instrument Bonds $ 6% M&D Corporation Bond $ 17,200 33,000 15,500 $ 65,700 Gain on sale of Distribution Transformer Bond 40,000 Fair Value Adjustment(Net Gain) $ 16,000 121,700 Total $ 74 Statement of Comprehensive Income include unrealized gain and losses. Ornamental Insulation Corporation Balance Sheet as on 31st Dec, 2021 Assets Current Assets I stment in

6% M&D Corporation Bond 15,500 $ 65,700 Gain on sale of Distribution Transformer Bond 40,000 $ Fair Value Adjustment(Net Gain) Total 16,000 121,700 74 Statement of Comprehensive Income include unrealized gain and losses. Ornamental Insulation Corporation Balance Sheet as on 31st Dec,2021 Assets Current Assets Investment in 10% American Instrument Bonds $ 943,000 6% M&D Corporation Bond $ 1,613,000 $ 2,556,000 Shareholders Equity Retained Earnings given in comprehensive Income statement) 121,700 Sheet49 Sheet48 Sheet50 Sheet51 Sheet52 Sheet53 Sheet54 Sheet55 Sheet56 Sheer

E Merge & Center - $ % , Alignment Number Format Painter ter 2 A E Clipboard Font L76 - Ox fo A B C Ornamental Insulation Corporation Income Statement for the year ended 31st Dec, 2021 D E F G H Interest on Bonds- 8% Distribution Transformer Bonds $ 10% American Instrument Bonds $ 6% M&D Corporation Bond $ 17,200 33,000 15,500 $ 65,700 Gain on sale of Distribution Transformer Bond Total 40,000 105,700 $ Ornamental Insulation Corporation Statement of ComprehensiveIncome for the year ended 31st Dec, 2021 Interest on Bonds- 8% Distribution Transformer Bonds $ 10% American Instrument Bonds $ 6% M&D Corporation Bond 17,200 33,000 15,500 $ 65,700

L76 DEF 20 2-Oct Cash $ 470,000 8% Distribution Transformer Bonds 470,000 (Sold Bonds) $ 1,550,000 1-Nov 6% M&D Corporation Bond Cash (Acquisition of Bond at face value.) 1,550,000 $ 48,500 48,500 31-Dec Interest Receivable Interest on bonds (Interest Accrued on American Instrument Bonds & M&D Corporation Bond) American Instrument Bond=$990000*10%*4/12=$33000 M&D Corporation Bond=1550000*6%*2/12=$15500 $ 47,000 47,000 31-Dec Fair Value Adjustment 10% American Instrument Bonds (Adjustment made in bonds to market price reflecting unrealized loss) LA che 50 Sheet 51 Shaar

HomeworkLib (Autosaved) - Microsoft Excel Review View General Wrap Text TRES Merge & Center - Conditional Format Formatting as Table Styles C Styles Alignment Number Home Insert Page Layout Formulas Data * Cut Calibri - 11 A - En Copy Paste Format Painter BI U 2 A Clipboard Font L76 - XVfx B C Ornamental Insulation Corporation Journal Entries Date Particulars Debit D N Credit 2021 8% Distribution Transformer Bonds $ 430,000 31-Mar Cash (Acquisition of Bond at face value.) $ 430,000 BOUW $ 990,000 1-Sep 10% American Instrument Bonds Cash (Acquisition of Bond at face value) S 990,000 $ 17,200 17,200 30-Sep Cash Interest on Bond (Semi Annual Interest payment on Distribution Transformer Bond i.e[430000*8%)/2) 40,000 $ 40,000 2-Oct 8% Distribution Transformer Bonds $ Fair Value Adjustment (Adjustment made in bonds to market price reflecting unrealized gain) 2-Oct Cash $ 470,000 so chootse chootso shearst sheets

Formatting Clipboard L76 Alignment Font Xv for Number - A 39 $ 63,000 0 63,000 41 42 31-Dec 6% M&D Corporation Bond Fair Value Adjustment |(Adjustment made in bonds to market price reflecting unrealized gain) 31-Dec Net Income Fair Value Adjustment Interest on Bonds (Transfer of Interest and fair value adjustment gain on bond sold to Income Summary) $ 105,700 43 $ $ 40,000 65,700 44 Ornamental Insulation Corporation Income Statement for the year ended 31st Dec, 2021 Interest on Bonds- 8% Distribution Transformer Bonds $ 10% American Instrument Bonds $ 6% M&D Corporation Bond $ 17,200 33,000 15,500 $ 65,700 Gain on sale of Distribution Transformer Bond Total Sheet49 Sheet48 Sheet50 40,000 105,700 Sheet53 Sheet54 57 $ Sheet52 Sheet51 Sheet55 Sheet56 Sheet57 Enter