Answered Essay: The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The compan

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, intending to profit from short-term differences in price and maintaining them in an active trading portfolio. Ornamentals fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $510, eee at face value. Sep. 1 Acquired $1,230,000 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 $590,000. Nov. 1 Purchased $1,950,000 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 M&D Corporation bonds $1,181,000 $2,021,000 (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 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. Complete this question by entering your answers in the tabs below Required 1Required 2 Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. (If no entry is required for a transaction/event, select No journal entry required, in the first account field.)

I made a few mistakes, but I do not really understand why I’m wrong with this. Please help!

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. 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, 2017. Mar. 31 Acquired 8% Distribution Transformers Corporation bonds costing $510,000 at face value. Sep. 1 Acquired $1,230,000 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 $590,000. Nov. 1 Purchased $1,950,000 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: Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 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. Complete this question by entering your answers in the tabs below. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. (If no entry is required for a transaction/event, select “No journal entry required, in the first account field.) Required: 1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. 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. 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.)

Expert Answer

 

For the sale of investments use “realised gain “instead of gain on sale of investments the amount $80,000 is realised gain because investments are sold.

For unrealised gain the difference between fair market value of investments and cost of investments for the each investment need to book at the year end as a unrealised gain and unrealised loss i.e show unrealised gain $ 71,000 and unrealised loss ($49,000)

So the journal entry will be

Fair value adjustment Dr 22,000

Unrealised loss Dr 49,000

To Unrealised gain 71,000

In income statement also need to show unrealised gain and loss separately.

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