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Anit [1.1K]
2 years ago
6

Indigo Corporation purchased trading investment bonds for $55,000 at par. At December 31, Indigo received annual interest of $2,

200, and the fair value of the bonds was $52,500. Prepare Indigo' journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
Business
1 answer:
babunello [35]2 years ago
6 0

Answer:

(a) the purchase of the investment

Dr. Investment in trading security $55,000

Cr. Cash                                          $55,000

(b) the interest receive

Dr. Interest receivable                       $2,200

Cr. Interest on Investment (income) $2,200

Dr. Cash                                              $2,200

Cr. Interest receivable                       $2,200

(c) the fair value adjustment

Dr. Unrealized Loss                        $2,500

Cr. Investment in trading security $2,500

Explanation:

Trading Investment Bonds are recorded as assets and these are reported at fair value. Any gain or loss arising from the fair value adjustment will be recorded. Fair value adjustment should be made at end of each reporting period and when a significant difference arose. Gain from the fair value adjustment will increase the value of Investment in trading security and loss will decrease the value.

Unrealized gain = Current Book value of Investment - Fair value

Unrealized gain = $55,000 - $52,500

Unrealized gain = $2,500

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Answer:

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2016 139%

2015 183%

Explanation:

A.Computation of the current ratio for the year ended 2017, 2016, and 2015.

Using this formula

Current Ratio =Current Assets / Current Liabilities

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Cash $26,403 $29,364 $29,991

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a.Current asset

204,424 160,420 116,867

b.Current Liabilities

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Let plug in the formula

(a) / (b) Current Ratio 191% 248% 289%

Therefore the Current ratio are:

2017 191%

2016 248%

2015 289%

B.Computation for acid-test ratio for the year ended 2017, 2016, and 2015.

Using this formula

Acid Test Ratio=Current Assets / Current Liabilities

2017 2016 2015

Cash $26,403 $29,364 $29,991

Accounts receivable, net

73,552 52,436 40,392

Prepaid expenses 8,255 7,944 3,467

a. Current asset

108,210 89,744 73,850

b. Current liabilities

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Let plug in the formula

(a) / (b)Acid Test Ratio 101% 139% 183%

Therefore the Acid Test Ratio are:

2017 101%

2016 139%

2015 183%

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Answer:

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