Problem 12-5 (Algo) Various transactions related to trading securities (L012-1, 12-3] The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $480,000 at face value. Sep. 1 Acquired $1,140,000 of American Instruments' 10% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $545,000. Nov. 1 Purchased $1,800,000 of M&D Corporation 6% bonds at face value. Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are American Instruments bonds M&D Corporation bonds $1,098,000 $1,868,000 (Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments. Complete this question by entering your answers in the tabs below. No General Journal Debit Credit 1 Date March 31, 2021 Investment in bonds Cash 480,000 480,000 2 September 01, 2021 Investment in bonds 1,140,000 Cash 1,140,000 3 September 30, 2021 Cash 19,200 Interest revenue 19,200 4 65,000 October 02, 2021 Fair value adjustment Gain on investments (unrealized, OCI) 65,000 5 545,000 October 02, 2021 Cash Investment in bonds Gain on investments (unrealized, OCI) 480,000 65,000 6 November 01, Investment in bonds 2021 1,800,000 Cash 1,800,000 7 December 31, 2021 Interest receivable 38,000 Interest revenue 38,000 8 8 December 31, 2021 18,000 Interest receivable Interest revenue 18,000 9 December 31, 2021 26,000 Fair value adjustment Gain on investments (unrealized, OCI) 26,000 Required 1 Required 2 Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.) Income statement: Interest revenue Gain on investments $ 75,200 $ 75,200 Net income Statement of comprehensive income: $ 0 Other comprehensive income Comprehensive income Balance sheet: Assets Current Assets Interest receivable 56,000 Investments Investment in bonds Add: Fair value adjustment Shareholders' Equity Retained earnings $ 2,940,000 26,000 $ 2,966,000
