Problem 12-5 Various transactions related to trading securities [LO12-1, 12-3]

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamentals fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

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	$	1,098,000
M&D Corporation bonds	$	1,868,000

(Hint: Interest must be accrued.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Requirement 1:

Requirement 2:

Problem 12-5 Various transactions related to trading securities [LO12-1, 12-3] The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. 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, 2017. 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 2018, as well as any adjusting entries necessary at year end 2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments. Record the acquisition or 8% Distribution Ira n stormers Corporation bonds costing $480,000 at face value. 2 Record the acquisition of $1,140,000 of American Instruments, 10% bonds at face value. Record the entry for the semiannual interest received on the Distribution Transformers bonds. 4 Record the entry to adjust to fair value on the date of/ sale of the Distribution Transformers bonds. 5 Record the entry for sale of Distribution Transformers bonds for $545,000 6 Record the acquisition of $1,800,000 of M&D Corporation Note-journal entry has been entered X: 4 Record the entry to adjust to fair value on the date of/ sale of the Distribution Transformers bonds. 5 Record the entry for sale of Distribution Transformers bonds for $545,000 6 Record the acquisition of $1,800,000 of M&D Corporation 7 Record the interest accrual for American Instruments 8 Record the interest accrual for M&D bonds. 9 Record the entry for Fair-value adjustment. 6% bonds at face value. bonds. Required 1Required 2 Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments. (Amounts to be deducted should be indicated with a minus sign.) Income statement $ 241,200 Interest revenue Gain on sale of investments 65,000 $ 306,200 $306,200 Net income Statement of comprehensive income Net income Balance sheet: Assets Current Assets $ 1,140,000 1,800,000 Investment in American Instruments bonds Investment in M&D Corporation bonds Investments Add: Fair value adjustment 26,000 $ 26,000 Shareholders' Equity Retained earnings $306,200 Required 1 Required 2