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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Trading Securities 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:

Chapter 13, Problem 6P, Trading Securities Akers Company invests its excess cash in marketable securities. At the beginning , example  1

During 2019, the following transactions occurred:

Chapter 13, Problem 6P, Trading Securities Akers Company invests its excess cash in marketable securities. At the beginning , example  2

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. 1. Prepare journal entries to record the preceding information.
  2. 2. Show what is reported on Akers’s 2019 income statement.
  3. 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.

1.

To determine

Record the journal entries in the books of Company A.

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.

Trading securities: These are the securities which are purchased to earn the profits due to changes in their market prices.

Record the journal entries in the books of Company A.

DateAccount Title and Explanation

Debit

($)

Credit ($)
March 31Investment in trading securities20,000
 Interest income ($20,000×0.08×312)400 
     Cash 20,400
 (To record the investment in trading securities)  
    
March 31Interest receivable ($40,000×0.06×312)600 
     Investment in trading securities     ($3,2005 years×312) 160
     Interest income  
 (To record the interest receivable)
    
March 31Cash ($42,000+$6,000)1,200 
     Investment in trading securities     ($41,600$160)41,640
     Interest receivable 600
     Gain on sale of trading     securities 360
 (To record the gain on sale of trading securities)  
    
June 30Cash 800 
     Interest income     ($20,000×0

2.

To determine

Identify the amount that is reported in Company A’s income statement.

3.

To determine

Identify the manner in which the items are reported in Company A’s balance sheet.

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