Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31:Year 1Apr. 1. Purchased $100,000 of Welch Co. 6%, 15-year bonds at their face amount plus accrued interest of $500. The bonds pay interest semiannually on March 1 and September 1.June 1. Purchased $210,000 of Bailey 4%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on May 1 and November 1.Sept. 1. Received semiannual interest on the Welch Co. bonds.30. Sold $40,000 of Welch Co. bonds at 97 plus accrued interest of $200.Nov. 1. Received semiannual interest on the Bailey bonds.Dec. 31. Accrued $1,200 interest on the Welch Co. bonds.31. Accrued $1,400 interest on the Bailey bonds.Year 2Mar. 1. Received semiannual interest on the Welch Co. bonds.May 1. Received semiannual interest on the Bailey bonds.Instructions1. Journalize the entries to record these transactions.2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

Question
Asked Dec 20, 2019
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Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31:
Year 1
Apr. 1. Purchased $100,000 of Welch Co. 6%, 15-year bonds at their face amount plus accrued interest of $500. The bonds pay interest semiannually on March 1 and September 1.
June 1. Purchased $210,000 of Bailey 4%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on May 1 and November 1.
Sept. 1. Received semiannual interest on the Welch Co. bonds.
30. Sold $40,000 of Welch Co. bonds at 97 plus accrued interest of $200.
Nov. 1. Received semiannual interest on the Bailey bonds.
Dec. 31. Accrued $1,200 interest on the Welch Co. bonds.
31. Accrued $1,400 interest on the Bailey bonds.
Year 2
Mar. 1. Received semiannual interest on the Welch Co. bonds.
May 1. Received semiannual interest on the Bailey bonds.

Instructions

1. Journalize the entries to record these transactions.
2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

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Expert Answer

Step 1

Bond investment: Bond investments are debt securities which pay a fixed interest revenue to the investor.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Step 2

(1)

To journalize: The bond investment transactions in the books of Company G

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Prepare journal entry for purchase of $100,000 bonds of Company W, at face amount with an accrued interest of $500. Post. Account Titles and Explanations Debit (S) Credit (S) Date Ref. Year 1 April 1 Investments-Company W Bonds 100,000 Interest Receivable 500 Cash 100,500 (Тo record purchase of Coтрапу W bonds for cash) Preparejournal entry for purchase of $210,000 bonds of Company B, at face amount with an accrued interest of $700. Post. Account Titles and Explanations Debit (S) Credit (S) Date Ref. Year 1 June 1 Investments-Company B Bonds 210,000 Interest Receivable 700 Cash 210,700 (Тo record purchase of Coотрапу В bonds for cash)

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Step 3
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Prepare journal entry to record the interest revenue received from Company W bonds. Debit Post. Credit Account Titles and Explanations Date Ref. (S) (S) Year 1 September 1 Cash 3,000 Interest Receivable 500 2,500 Interest Revenue record (To revenue) receipt of interest Prepare journal entry for $40,000 bonds of Company W sold at 97%, with an accrued interest of $200. Credit Post. Debit Account Titles and Explanations Date Ref. (S) (S) Year 1 30 | Cash September 39,000 Loss on Sale of Investments 1,200 Interest Revenue 200 Investments-Company W Bonds (To record sale of M City bonds) 40,000

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