Holly Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in available-for-sale debt securities: Security Par Value Amortized Cost 12/31/18 Fair Value Igor Company 5% bonds, maturing on Dec. 31, 2028 $10,000 $8,400 $9,400 Ozone Company 6% bonds, maturing on Dec. 31, 2023 $20,000 23,100 21,700 Totals $31,500 $31,100 During 2019, the following transactions occurred: Mar. 31 Purchased Union Company 8% bonds with a face value of $10,000 for $10,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31. Mar. 31 Sold the Ozone Company investment for $22,000 plus accrued interest. June 30 Received the semiannual interest on the Union Company bonds. Dec. 31 Received the annual interest on the Igor Company bonds and the semiannual interest on the Union Company bonds. The December 31 closing market prices were as follows: Igor Company bonds, $9,000; and Union Company 8% bonds, $10,100. Holly uses the straight-line method to amortize any discounts or premiums. Required: 1. Prepare journal entries to record the preceding information. 2. Show what is reported on Holly’s 2019 income statement. 3. Assuming the investment in Igor Company bonds is considered to be a current asset and the investment in Union Company bonds is considered to be a noncurrent asset, show how all the items are reported on Holly’s December 31, 2019, balance sheet. 4. What is Holly’s unrealized holding gain or loss on available-for-sale securities in 2019?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 21E: Mills Company had five convertible securities outstanding during all of 2019. It paid the...

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Holly Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in available-for-sale debt securities:

Security	Par Value	Amortized Cost	12/31/18 Fair Value
Igor Company 5% bonds, maturing on Dec. 31, 2028	$10,000	$8,400	$9,400
Ozone Company 6% bonds, maturing on Dec. 31, 2023	$20,000	23,100	21,700
Totals		$31,500	$31,100

During 2019, the following transactions occurred:

Mar. 31	Purchased Union Company 8% bonds with a face value of $10,000 for $10,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31.
Mar. 31	Sold the Ozone Company investment for $22,000 plus accrued interest.
June 30	Received the semiannual interest on the Union Company bonds.
Dec. 31	Received the annual interest on the Igor Company bonds and the semiannual interest on the Union Company bonds.

The December 31 closing market prices were as follows: Igor Company bonds, $9,000; and Union Company 8% bonds, $10,100. Holly uses the straight-line method to amortize any discounts or premiums.

Required:

1.	Prepare journal entries to record the preceding information.
2.	Show what is reported on Holly’s 2019 income statement.
3.	Assuming the investment in Igor Company bonds is considered to be a current asset and the investment in Union Company bonds is considered to be a noncurrent asset, show how all the items are reported on Holly’s December 31, 2019, balance sheet.
4.	What is Holly’s unrealized holding gain or loss on available-for-sale securities in 2019?

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