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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Investments in Available-for-Sale Bonds During 2019, Dana Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Dana’s 2019 marketable security transactions;

Chapter 13, Problem 11P, Investments in Available-for-Sale Bonds During 2019, Dana Company decided to begin investing its

Required:

  1. 1. Record Dana’s investment transactions for 2019.
  2. 2. Show the items of income or loss on available for sale investments Dana reports on its 2019 income statement.
  3. 3. Show the carrying value of Dana’s investment account on its December 31, 2019, balance sheet.

1.

To determine

Prepare the journal entry to record the investment transactions in the books of Company D for the year 2019.

Explanation

Investment: It refers to the process of using the currently held excess cash to earn profitable returns in future. The investments can be made in equity securities such as shares or debt securities such as bonds.

Prepare the journal entries in the books of Corporation N for January 6 through June 30, 2019.

DateAccount Title and Explanation Debit ($)

 Credit

($)

April 1, 2019Investment in available-for sale securities20,000 
 Interest income (1)600
 Cash 20,600
 (To record the purchase of bonds at par)  
    
June 30, 2019Cash1,200 
 Interest income (2) 1,200
 (To record the receipt of interest income)  
    
November 1, 2019Investment in available-for sale securities30,000 
 Interest income (3)1,375 
 Cash 31,375
 (To record the purchase of bonds )  
    
December 1, 2019Cash1,650 
 Interest income (4) 1,650
 (To record the interest income)  
    
December 1, 2019Cash30,300 
 Investment in available-for sale securities  30,000
 Gain on sales of available-for sale securities ($30,300$30,000) 300
 (To record the gain on sale of the securities)  
    
December 31, 2019Cash1,200 
 Interest income (5) 1,200
 (To record the interest income)  
    
December 31, 2019Allowance for change in fair value of investment ($20,200$20,000)200  
 Unrealized holding gain/loss: Available for sale securities 200
 (To record the unrealized holding gain or loss)  

Table (1)

Working note (1):

Calculate the amount of interest income:

Interest income=(Purchase price×Interest rate×Number of months interest accruedNumber of months)=($20,000×0

2.

To determine

Show the items that would be reported as income or loss from the investment in the income statement for the year 2019.

3.

To determine

Show the way in which the investments items are reported in the 2019 balance sheet.

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