The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021.

Question

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. 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, 2020. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $540,000 at face value. Sep. 1 Acquired $1,320,000 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 $580,000. Nov. 1 Purchased $2,100,000 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 $ 1,274,000 M&D Corporation bonds $ 2,174,000 (Hint: Interest must be accrued.) Required: 1.

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1) Journal entries for each transaction or event during 2021, as well as any adjusting entries necessary at year end: Date Particulars Debit ($) Credit ($) Mar 31 Investment in Corporation bonds a/c 540,000 To Cash 540,000 (Recording acquisition of 8% Distribution Transformers Corporation bonds) Sep 1 Investment in American instruments a/c 1,320,000 To Cash 1,320,000 (Recording acquisition of 10% American Instruments bonds) Sep 30 Cash a/c 21,600 To Interest (540000*8/100*6/12) 21,600 Recording semiannual interest payment on the 8% Distribution Transformers bonds. Oct 2 cash a/c 580,000 To Investment in Corporation bonds a/c 540,000 Fair value adustment a/c 40,000 (Recording sale of Investment in Corporation bonds) Oct 2 Fair value adustment a/c 40,000 To Unrealized gain a/c 40,000 Nov 1 Investment in M & D Corporation bonds 2,100,000 To cash 2,100,000 (Recording acquisition of 6% M & DCorporation bonds) Dec 31 Interest Receivable a/c 44,000 To interest (1,320,000*4/12*10/100) 44,000 (Interest accured on 10% American Instruments bonds) Dec 31 Interest Receivable a/c 21,000 To interest (2,100,000*2/12*10/100) 21,000 (Interest accured on 6% M & DCorporation bonds) Dec 31 Fair value adustment a/c 28,000 To Unrealized gain a/c 28,000 on 10% American Instruments bonds & )(1,274,000-1,320,000 = -46000 on 6% M & DCorporation bonds =2,174,000 - 2,100,000 = 74000 Net = 28,000 gain 2) Net Income in Income statement Particulars Calculation Amount ($) Interest revenue 21,600 + 44000 +

Particulars	Calculation	Amount ($)
Interest revenue	21,600 + 44000 + 21000	86,600
Add: Unrealized gain	40,000+28,000	68,000
Net Income		154,600

Partuclars	Amount($)
Net Income	154,600
OC

Particulars	Amount ($)
Interest accured (44,000+21,000)	65,000
Securities (1,320,000+2,100,000 = 3,420,000)
Add: Unrecognised Gain 28000	3,448,000
Share holders equity:
Retained earnings	154,600

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The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021

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Mar.	31	Acquired 8% Distribution Transformers Corporation bonds costing $540,000 at face value.
Sep.	1	Acquired $1,320,000 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 $580,000.
Nov.	1	Purchased $2,100,000 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	$	1,274,000
M&D Corporation bonds	$	2,174,000

Date	Particulars	Debit ($)	Credit ($)
Mar 31	Investment in Corporation bonds a/c	540,000
	To Cash		540,000
	(Recording acquisition of 8% Distribution Transformers Corporation bonds)
Sep 1	Investment in American instruments a/c	1,320,000
	To Cash		1,320,000
	(Recording acquisition of 10% American Instruments bonds)
Sep 30	Cash a/c	21,600
	To Interest (5400008/1006/12)		21,600
	Recording semiannual interest payment on the 8% Distribution Transformers bonds.
Oct 2	cash a/c	580,000
	To Investment in Corporation bonds a/c		540,000
	Fair value adustment a/c		40,000
	(Recording sale of Investment in Corporation bonds)
Oct 2	Fair value adustment a/c	40,000
	To Unrealized gain a/c		40,000

Nov 1	Investment in M & D Corporation bonds	2,100,000
	To cash		2,100,000
	(Recording acquisition of 6% M & DCorporation bonds)
Dec 31	Interest Receivable a/c	44,000
	To interest (1,320,0004/1210/100)		44,000
	(Interest accured on 10% American Instruments bonds)
Dec 31	Interest Receivable a/c	21,000
	To interest (2,100,0002/1210/100)		21,000
	(Interest accured on 6% M & DCorporation bonds)
Dec 31	Fair value adustment a/c	28,000
	To Unrealized gain a/c		28,000
	on 10% American Instruments bonds & )(1,274,000-1,320,000 = -46000 on 6% M & DCorporation bonds =2,174,000 - 2,100,000 = 74000 Net = 28,000 gain