Chelsea Carecenters Inc. provides financing and capital to the health-care industry.

with a particular focus on nursing homes for the elderly. The following selected transactions relate to bonds acquired as an investment by Chelsea, whose fiscal year ends on Decembei 31.

2006 Jan. Purchased at par $3,000,000 of Caring Nursing Centers. Inc.. 10-year, 8% bonds dated January 1, 2006, directly from Caring.

July 1 Received the semiannual interest on the Caring bonds.

Dec. 31 Accrued interest at year-end on the Caring bonds.

(Assume that all intervening transactions and adjustments have been properly recorded and that the number of bonds owned has not chanced from December 31. 2(KK>. to December 31.

2008.)

Instructions

(a) Journalize the listed transactions for the years 2006 and 2009.

(b) Assume that the fair value of the bonds at December 31.2006, was $3,300,000. These bonds are classified as available-for-sale securities. Prepare the adjusting entry to record these bonds at fair value.

(c) Based on your analysis in part (b), show the balance sheet presentation of the bonds and interest receivable at December 31, 2006. Assume the investments are considered long- term. Indicate where any unrealized gain or loss is reported in the financial statements.

Transcribed Image Text:

2009 Jan. Jan. Received the semiannual interest on the Caring bonds. I Sold $1,500,000 Caring bonds at 106. The broker deducted $6,000 for commissions and fees on the sale. July 1 Received the semiannual interest on the Caring bonds. Dec. 31 Accrued interest at year-end on the Caring bonds.