On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following: Marsh Company Partial Balance Sheet December 31, 2018 1 Assets 2 Investment in Available-for-Sale Securities $15,000.00 3 Less: Allowance for Change in Fair Value of Investment (2,000.00) 4 $13,000.00 5 Shareholders’ Equity: 6 Unrealized Holding Gain/Loss $(2,000.00) On January 1, 2019, Marsh acquired bonds of Yellow Company with a par value of $17,000 for $17,200. The Yellow Company bonds carry an annual interest rate of 12% and mature on December 31, 2023. Additionally, Marsh acquired Zebra Company bonds with a face value of 19,000 for $18,600. The Zebra Company bonds carry an 8% annual interest rate and mature on December 31, 2028. At the end of 2019, the respective market values of the bonds were: Xenon, $14,000; Yellow, $18,000; and Zebra, $21,000. Marsh classifies all of the debt securities as available-for-sale as it does not intend to hold them to maturity nor does it intend to actively buy and sell them. Assume that Marsh uses the straight-line method to amortize any discounts or premiums. Required: 1. Prepare the journal entries necessary to record the purchase of the investments on January 1, 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019. 2. What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

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

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 16E

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On December 31, 2018, Marsh Company held Xenon Company bonds in its portfolio of available-for-sale securities. The bonds have a par value of $15,000, carry a 10% annual interest rate, mature in 2025, and had originally been purchased at par. The market value of the bonds at December 31, 2018 was $13,000. The December 31, 2018, balance sheet showed the following:

Marsh Company

Partial Balance Sheet

December 31, 2018

1	Assets
2	Investment in Available-for-Sale Securities	$15,000.00
3	Less: Allowance for Change in Fair Value of Investment	(2,000.00)
4		$13,000.00
5	Shareholders’ Equity:
6	Unrealized Holding Gain/Loss	$(2,000.00)

On January 1, 2019, Marsh acquired bonds of Yellow Company with a par value of $17,000 for $17,200. The Yellow Company bonds carry an annual interest rate of 12% and mature on December 31, 2023. Additionally, Marsh acquired Zebra Company bonds with a face value of 19,000 for $18,600. The Zebra Company bonds carry an 8% annual interest rate and mature on December 31, 2028. At the end of 2019, the respective market values of the bonds were: Xenon, $14,000; Yellow, $18,000; and Zebra, $21,000. Marsh classifies all of the debt securities as available-for-sale as it does not intend to hold them to maturity nor does it intend to actively buy and sell them. Assume that Marsh uses the straight-line method to amortize any discounts or premiums.

Required:

1.	Prepare the journal entries necessary to record the purchase of the investments on January 1, 2019, the annual interest payments on December 31, 2019, and the adjusting entry needed on December 31, 2019.
2.	What would Marsh disclose on its December 31, 2019, balance sheet related to these investments?

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