AFS investments

2018

Sept. 1

Acquired $600,000 of 10% bonds issued by CM, Inc. at face value. Interest is payable

semiannually on March 1 and September 1.

Nov. 1

Purchased $1,500,000 of 12% bonds issued by Sun Company at face value. Interest is payable

semiannually on May 1 and November 1.

Dec. 31

Recorded any necessary adjusting entries relating to the investments (including interest earned in

2018). The market prices of the investments are:

CM, Inc. bonds $ 540,000

Sun Co. shares 1,580,000

2019

Mar. 1 Received semiannual interest of $30,000 on the investment in CM, Inc. bonds.

May 1 Received semiannual interest of $90,000 on the investment in Sun Co. bonds.

May 2 Sold the investment in Sun Co. bonds for $1,585,000.

Sept. 1 Received semiannual interest of $30,000 on the investment in CM, Inc. bonds.

Dec. 1 Acquired $900,000 of 8% bonds issued by MD Industries at face value. Interest is payable

semiannually on June 1 and December 1.

Dec. 31

Recorded any necessary adjusting entries relating to the investments (including interest earned in

2019). The market prices of the investments are:

CM, Inc. bonds $ 525,000

MD Industries bonds 923,000

Requirement 1:

a. Record the 2018 transactions/events in journal entries or t-accounts.

b. Assuming 2018 income from operations was $300,000, compute 2018 net income, ignoring taxes. This amount does not include any revenue, gains/losses from the investments.

c. Compute 2018 comprehensive income.

d. Show the amounts that Brown will report on its 2018 balance sheet as assets related to these investments

(other than cash).

e. Show the amounts that Brown will report on its 2018 balance sheet in stockholders equity for retained earnings and accumulated OCI. The 12-31-17 balances were: retained earnings, $500,000; accumulated OCI, $0.

Requirement 2:

a. Record the 2019 transactions/events in journal entries or t-accounts.

b. Assuming 2019 income from operations was $300,000, compute 2019 net income, ignoring taxes. This amount does not include any revenue, gains/losses from the investments.

c. Compute 2019 comprehensive income.

d. Show the amounts that Brown will report on its 2019 balance sheet as assets related to these investments (other than cash).

e. Show the amounts that Brown will report on its 2019 balance sheet in stockholders equity for retained earnings and accumulated OCI.