Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31:

Record these transactions on page 10

Year 1
Apr.	1.	Purchased $85,800 of Welch Co. 10%, 15-year bonds at their face amount plus accrued interest of $1,430. The bonds pay interest semiannually on March 1 and September 1.
June	1.	Purchased $64,800 of Bailey 5%, 10-year bonds at their face amount plus accrued interest of $135. The bonds pay interest semiannually on May 1 and November 1.
Sept.	1	Received semiannual interest on the Welch Co. bonds.
	30	Sold $26,400 of Welch Co. bonds at 96 plus accrued interest of $220.
Nov.	1	Received semiannual interest on the Bailey bonds.
Dec.	31	Accrued $1,980 interest on the Welch Co. bonds.
	31	Accrued $540 interest on the Bailey bonds.

Record these transactions on page 11

Year 2
Mar.	1	Received semiannual interest on the Welch Co. bonds.
May	1	Received semiannual interest on the Bailey bonds.

Required:

1.	Journalize the entries to record these transactions. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries.
2.	If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

If the bonds are classified as available-for-sale securities, then the portfolio of bonds would need to be .

This would be accomplished by using a valuation allowance account and an unrealized gain (loss) account as part of .

If the fair value were

than the cost of the bond portfolio, the two accounts would be positive and, thus, added to investments and stockholders equity, respectively. If the fair value were

than the cost of the bond portfolio, the two accounts would be negative and, thus, subtracted from investments and stockholders equity, respectively.