Chapter 12, Problem 12.7E

Various transactions relating to trading securities

• LO12-1, LO12-3

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2018 and the first week of 2019.

2018
Dec. 17	Purchased 100 Grocers’ Supply Corporation bonds at par for $350,000.
28	Received interest of $2,000 from the Grocers’ Supply Corporation bonds.
31	Recorded any necessary adjusting entry relating to the Grocers’ Supply Corporation bonds. The market price of the stock was $4,000 per bond.
2019
Jan. 5	Sold the Grocers’ Supply Corporation bonds for $395,000.

Required:

1. Prepare the appropriate journal entry for each transaction.

2. Indicate any amounts that Rantzow-Lear Company would report in its 2018 balance sheet and income statement as a result of this investment.