Question

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 8% Distribution Transformers Corporation bonds costing $570,000 at face value. Sep. 1 Acquired $1,155,000 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 $612,000. Nov. 1 Purchased $1,570,000 of M&D Corporation 6% bonds costing 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 M&D Corporation bonds $1,088,000 $1,649,000 (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 adjustment, 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.

Answer 1

Date 31-march so wtion ornamental insulation Corporation Journal entries for the year ended 31, December 2001 Account title and explanation Debit(s) credito Investment in Bonds Distribution transformer's si70,000 corporation cash 5:40,000 (To recond Investment in Bonds) Investment in Bonds of 1,55,000 Americah instrument cash 11,55.000 (To recond snuestment in Bond S Il-sel 30- sep 29,800 2-oct cath (5:40,000 x 8%.x ) 22,800 Interest Incomo Ctore cand interest scomes) cath 6.19.000 Investment in Bonds of distribution Transfarmory carbration Gain on sawaf Incestments (To recond, sale of Incestment ir Bands / Si70,000 42.000

1- NOU Investment in MED conporation 1570,000 cash IS170.000 (To recand investment in Bonds) 31-Dec accrued interest 54,200 Snterest Income su,900 [11,55,000x10% x 4 + 15170,000 x6%X & J ( To record interest accrued On bonds) 31-Dec Investment in MED conforation 79,000 unrealized holding gain 19.000 Investment in Ronds 67,000 of American instruments (To recand unrealized holding gain on valuation of Bonds)

reportable figures for year 2001 Income statement Interest Income (22.800454,900) 77,000 Gain on sale of ancestment 42,000 ® statement of comprehensive Income un realized Holding gain 19.000 10,88,000 © Balance sheet Investment in Bords of American Instruments nuestment in MED Corporation Accoved Interest 16.49,000 54.200