1. Debt Investment Transactions, Available-for-Sale Valuation Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Rekya Mart Inc., which has a fiscal year ending on December 31: Year 1 Apr. 1. Purchased $66,000 of Smoke Bay 7%, 10-year bonds at their face amount plus accrued interest of $770. The bonds pay interest semiannually on February 1 and August 1. May 16. Purchased $112,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $280. The bonds pay interest semiannually on May 1 and November 1. Aug. 1. Received semiannual interest on the Smoke Bay bonds. Sept. 1. Sold $26,400 of Smoke Bay bonds at 104 plus accrued interest of $154. Nov. 1. Received semiannual interest on the Geotherma Co. bonds. Dec. 31 Accrued $924 interest on Smoke Bay bonds. Dec. 31 Accrued $560 interest on Geotherma Co. bonds. Year 2 Feb. 1. Received semiannual interest on the Smoke Bay bonds. May 1. Received semiannual interest on the Geotherma Co. bonds. Required: 1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. 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 adjusted to (blank) . This would be accomplished by using a valuation allowance account and an (blank) a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Debt Investment Transactions, Available-for-Sale Valuation

Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Rekya Mart Inc., which has a fiscal year ending on December 31:

Year 1
Apr. 1.	Purchased $66,000 of Smoke Bay 7%, 10-year bonds at their face amount plus accrued interest of $770. The bonds pay interest semiannually on February 1 and August 1.
May 16.	Purchased $112,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $280. The bonds pay interest semiannually on May 1 and November 1.
Aug. 1.	Received semiannual interest on the Smoke Bay bonds.
Sept. 1.	Sold $26,400 of Smoke Bay bonds at 104 plus accrued interest of $154.
Nov. 1.	Received semiannual interest on the Geotherma Co. bonds.
Dec. 31	Accrued $924 interest on Smoke Bay bonds.
Dec. 31	Accrued $560 interest on Geotherma Co. bonds.
Year 2
Feb. 1.	Received semiannual interest on the Smoke Bay bonds.
May 1.	Received semiannual interest on the Geotherma Co. bonds.

Required:

1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.

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 adjusted to (blank) . This would be accomplished by using a valuation allowance account and an (blank) account.

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Journal entries: It is the duty of the accountant to record business economic and non-economic transactions in the accounting books of the company

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