Problem 12-6 Various transactions related to securities available-for-sale (LO12-1, 12-4] The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017. Mar. 31 Acquired 6% Distribution Transformers Corporation bonds costing $540,000 at face value. Sep. 1 Acquired $1,110,000 of American Instruments' 8% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $579,000. Nov. 1 Purchased $1,560,000 of M&D Corporation 4% bonds costing 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 $1,046,000 $1,635,000 (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. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. 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. Required 1 Required 2 Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Date General Journal Debit Credit March 31, 2018 Investment in Distribution Transformers bonds 540,000 Cash 540,000 September 01, 2018 Investment in American Instruments bonds 1,110,000 Cash 1,110,000 43 September 30, 2018 Cash 16,200 Interest revenue 16,200 4 39,000 October 02, 2018 Fair value adjustment Unrealized holding gain-OCI 39,000 39,000 October 02, 2018 Reclassification adjustment-OCI Fair value adjustment 39,000 6 579,000 October 02, 2018 Cash Investment in Distribution Transformers bonds Gain on sale of investments 540,000 39,000 November 01, 2018 1,560,000 Investment in M&D Corporation bonds Cash 1,560,000 December 31, 2018 Interest receivable 29,600 Interest revenue 29,600 December 31, 2018 Interest receivable 10,400 Interest revenue 10,400 10 December 31, 2018 Fair value adjustment 11,000 Unrealized holding gain-OCI 11,000 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: Investment revenue Gain on sale of investments $ 56,200 39,000 $ 95,200 Net income Statement of comprehensive income: Net income $ 95,200 Unrealized holding gain-OCI $ 11,000 11,000 106,200 $ Comprehensive income Balance sheet: Assets Current Assets Interest receivable 40,000 $ Investments Securities available-for-sale Deduct: Fair value adjustment Shareholders' Equity 579,000 39,000 $ 618,000 Accumulated other comprehensive income Problem 12-6 Various transactions related to securities available-for-sale (LO12-1, 12-4] The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental's fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017. Mar. 31 Acquired 6% Distribution Transformers Corporation bonds costing $540,000 at face value. Sep. 1 Acquired $1,110,000 of American Instruments' 8% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $579,000. Nov. 1 Purchased $1,560,000 of M&D Corporation 4% bonds costing 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 $1,046,000 $1,635,000 (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. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. 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. Required 1 Required 2 Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Date General Journal Debit Credit March 31, 2018 Investment in Distribution Transformers bonds 540,000 Cash 540,000 September 01, 2018 Investment in American Instruments bonds 1,110,000 Cash 1,110,000 43 September 30, 2018 Cash 16,200 Interest revenue 16,200 4 39,000 October 02, 2018 Fair value adjustment Unrealized holding gain-OCI 39,000 39,000 October 02, 2018 Reclassification adjustment-OCI Fair value adjustment 39,000 6 579,000 October 02, 2018 Cash Investment in Distribution Transformers bonds Gain on sale of investments 540,000 39,000 November 01, 2018 1,560,000 Investment in M&D Corporation bonds Cash 1,560,000 December 31, 2018 Interest receivable 29,600 Interest revenue 29,600 December 31, 2018 Interest receivable 10,400 Interest revenue 10,400 10 December 31, 2018 Fair value adjustment 11,000 Unrealized holding gain-OCI 11,000 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: Investment revenue Gain on sale of investments $ 56,200 39,000 $ 95,200 Net income Statement of comprehensive income: Net income $ 95,200 Unrealized holding gain-OCI $ 11,000 11,000 106,200 $ Comprehensive income Balance sheet: Assets Current Assets Interest receivable 40,000 $ Investments Securities available-for-sale Deduct: Fair value adjustment Shareholders' Equity 579,000 39,000 $ 618,000 Accumulated other comprehensive income