Question

Oriole Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.

Feb. 1, 2017		Sharapova Company common stock, $110 par, 220 shares		$36,300
April 1		U.S. government bonds, 12%, due April 1, 2027, interest payable April 1 and October 1, 108 bonds of $1,000 par each		108,000
July 1		McGrath Company 12% bonds, par $53,500, dated March 1, 2017, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2037		57,780

1.  Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale.

Account Titles & Explanation	Debit	Credit
Debt Investments
Equity Investments
Interest Revenue
Investment

2. Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2017, using the straight-line method.

Date	Account Titles & Explanation	Debit	Credit
Dec 31, 2017	Interest Receivable
	Debt Investments
	Interest Revenue

3.  The fair values of the investments on December 31, 2017, were:

Sharapova Company common stock		$32,100
U.S. government bonds		116,400
McGrath Company bonds		59,100

What entry, if any, would you recommend be made?

Date	Account Titles & Explanation	Debit	Credit
Dec 31, 2017	Fair Value Adjustment
	Unrealized Holding Gain or Loss - Equity?

(Entry for debt investment)

Date	Account Title & Explanation	Debit	Credit
Dec 31, 2017	Unrealized Holding Gain or Loss - Equity
	Fair Value Adjustment

(Entry for equity investment)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
	Debt Investment [($108,000) + ($53,500 × 104%)	$163,640
	Equity Investment	$36,300
	Interest Revenue [($57,780) - ($53,500 × 104%)]	$2,140
	Investments		$202,080
	(To record the investments)
Dec. 31, 2017	Interest Receivable[($53,500 × 12%) × 10/12 )] + ( $108000 × 12%) × 3/12]	$8,590
	Debt Investment ($53,500 × 4%)/236*6		$54
	Interest Revenue		$8,536
	(To record the accrual of interest and amortization of premium)
Dec. 31, 2017	Fair value adjustment (See W.N) ($8400+$1375)	$9,775
	Unrealized holdings gains or loss - Equity		$9,775
	(To record fair value adjustment for Entry for Debt-Investment)
	Unrealized Holding gain or loss-Equity	$4,200
	Fair value adjustments		$4,200
	(To record fair value adjustments for entry for equity investment)

Working as follows:

	Fair Value	Cost	Unrealized Gain/(Loss)
Common stock	$32,100	$36,300	($4,200)
US Treasury bonds	$116,400	$108,000	$8,400
Mc Grath Company bonds	$59,100	$57,725	$1,375
		($57,780 - $54)
Total			$5,575