At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt securities (all of which were acquired at par value): Company Amortized Cost 12/31/18 Fair Value Cumulative Change in Fair Value Morgan Company $35,000 $34,200 $(800) Nance Company 50,000 53,100 3,100 Totals $85,000 $87,300 $2,300 During 2019, the following transactions occurred: July 1 Purchased Oscar Company debt securities with a par value of 100,000 for $98,000. The securities carry an annual interest rate of 10%, mature on December 31, 2021, and pay interest seminannually on July 1 and December 31. Terry uses the straight-line method to amortize any discounts or premiums. Oct. 11 Sold all of the Morgan Company securities for $33,000 plus interest of $1,300. Dec. 31 Received interest of $6,000 on the Nance Company and Oscar Company debt securities, and the following yearend total market values were available: Nance Company debt securities, $55,000; Oscar Company debt securities, $96,000. Required: 1. Prepare journal entries to record the preceding information. 2. Show how the preceding items are reported on Terry’s December 31, 2019, balance sheet. Assume all investments are non-current. 3. If Terry uses IFRS, how would the accounting for investments be different from U.S. GAAP?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 19E

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At the end of 2018, Terry Company prepared the following schedule of investments in available-for-sale debt securities (all of which were acquired at par value):

Company	Amortized Cost	12/31/18 Fair Value	Cumulative Change in Fair Value
Morgan Company	$35,000	$34,200	$(800)
Nance Company	50,000	53,100	3,100
Totals	$85,000	$87,300	$2,300

During 2019, the following transactions occurred:

July 1	Purchased Oscar Company debt securities with a par value of 100,000 for $98,000. The securities carry an annual interest rate of 10%, mature on December 31, 2021, and pay interest seminannually on July 1 and December 31. Terry uses the straight-line method to amortize any discounts or premiums.
Oct. 11	Sold all of the Morgan Company securities for $33,000 plus interest of $1,300.
Dec. 31	Received interest of $6,000 on the Nance Company and Oscar Company debt securities, and the following yearend total market values were available: Nance Company debt securities, $55,000; Oscar Company debt securities, $96,000.

Required:

1.	Prepare journal entries to record the preceding information.
2.	Show how the preceding items are reported on Terry’s December 31, 2019, balance sheet. Assume all investments are non-current.
3.	If Terry uses IFRS, how would the accounting for investments be different from U.S. GAAP?

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