Answer and Explanation:
a)
Journal entries
Mar.31
Dr Investment in Distribution Transformers shares $ 400,000.00
Cr Cash $ 400,000.00
Sept.1
Dr Investment in American Instruments bonds $900,000.00
Cr Cash $900,000.00
Sept.30
Dr Cash ($400,000 x 8%/2) $ 16,200.00
Cr Investment revenue $ 16, 000.00
Oct.2
Dr Cash $ 425,000.00
Cr Investment in Distribution Transformers $ 400,000.00
Cr Gain on sale of investments $ 25,000.00
Nov.1
Dr Investment in M&D Corporation shares $1,400,000.00
Cr Cash $1,400,000.00
Dec.31
Dr Investment revenue receivable $ 30,000.00
Cr Investment revenue ($900,000 x 10% x 4/12) $ 30,000.00
Dec.31
Dr Investment revenue receivable $ 14,000.00
Cr Investment revenue ($1,400,000x 6% x 2/12) $ 14,000.00
Dec.31
Dr Fair value adjustment (calculated below) $ 10,000.00
Cr Net unrealized holding gains and losses–OCI $ 10,000.00
Available for sale securities Cost Fair market Value Profit/Loss
M & D Corporation shares
$1,400,000.00 $ 1,460,000.00 $ 60,000.00
American Instruments bonds $900,000.00 $850,000.00 ($50,000.00)
Totals $2,300,000.00 $2,310,000.00 $ 10,000.00
b)
Income Statement
Investment Revenue = $16,200 + $30,000 + 14,000 $ 60,200.00
Gain on sale of investments $ 25,000.00
Statement of comprehensive income
Net unrealized holding gains and losses on investments $ 10,000.00
Balance sheet:
Current Assets
Investment revenue receivable $ 30,000.00
Securities available-for-sale $2,300,000.00
Add: Fair value adjustment $ 10,000.00 $2,310,000.00
Shareholders’ Equity
Net unrealized holding gains and losses on investments $ 10,000.00
