Question:Akers Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in trading debt securities:SecurityPar ValueAmortized Cost12/31/18 Fair ValueIvan Company 5% bonds, maturing on Dec. 31, 2028$10,000$8,400$9,400Taylor Company 6% bonds, maturing on Dec. 31, 2023$40,000$43,200$41,800Totals$51,600$51,200During 2019, the following transactions occurred:Mar. 31Purchased Hill Company 8% bonds with a face value of $20,000 for $20,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31.Mar. 31Sold the Taylor Company investment for $42,000 plus accrued interest. The Taylor bonds pay interest on December 31 of each year.June 30Received the semiannual interest on the Hill Company bonds.Dec. 31Received the annual interest on the Ivan Company bonds and the semiannual interest on the Hill Company bonds.The December 31 closing market prices were as follows: Ivan Company bonds, $9,000; and Hill Company 8% bonds $20,100. Akers 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 Akers's 2019 income statement.3. Assuming the investment in Ivan Company bonds is considered to be a current asset and the investment in Hill Company bonds is considered to be a noncurrent asset, show how all the items are reported on Akers's December 31, 2019, balance sheet.

Question
Asked Nov 3, 2019
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Question:

Akers Company invests its excess cash in marketable securities. At the beginning of 2019, it had the following portfolio of investments in trading debt securities:

SecurityPar ValueAmortized Cost12/31/18 Fair ValueIvan Company 5% bonds, maturing on Dec. 31, 2028$10,000$8,400$9,400Taylor Company 6% bonds, maturing on Dec. 31, 2023$40,000$43,200$41,800Totals$51,600$51,200During 2019, the following transactions occurred:

Mar. 31Purchased Hill Company 8% bonds with a face value of $20,000 for $20,000 plus accrued interest; interest is payable on the bonds each June 30 and December 31.Mar. 31Sold the Taylor Company investment for $42,000 plus accrued interest. The Taylor bonds pay interest on December 31 of each year.June 30Received the semiannual interest on the Hill Company bonds.Dec. 31Received the annual interest on the Ivan Company bonds and the semiannual interest on the Hill Company bonds.The December 31 closing market prices were as follows: Ivan Company bonds, $9,000; and Hill Company 8% bonds $20,100. Akers 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 Akers's 2019 income statement.3. Assuming the investment in Ivan Company bonds is considered to be a current asset and the investment in Hill Company bonds is considered to be a noncurrent asset, show how all the items are reported on Akers's December 31, 2019, balance sheet.

 

 

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Expert Answer

Step 1

Available for sale securities are reported at their fair value in the Balance sheet at the end of the financial period.

Step 2

1. The journal entries to record the entries are the following

 

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Debit $ Credit $ Accounts & Explanation Date 31-Mar Hill Company 8 % Bonds Interest Receivable (20000 8% *3/ 12 ) 20,000 400 Cash 20,400 (Bonds purchased along with accrued interest 31-Mar Cash(42000+630) 42630 Taylor company 6 % bonds. Interest income(42000 6%*3/12) 41800 630 200 gain on disposal of security (To record sale of Taylor company bonds) 30-Jun Cash 800 Interest receivable 400 Interest income 400 (Interest on hill compsany received 31-Dec Cash (500+800) 1300 Interest income 1300 (Interest on bods received) 31-Dec Loss in fair value of bonds Hill company 8% bonds 300 100 Ivan Company's bonds 400 (To record changes in fair value)

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Step 3

The items to be disclosed in Income ...

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Interest income gain on disposal of security Loss in fair value of bonds 2330 200 300

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