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 $54,000 of Smoke Bay 4%, 10-year bonds at their face amount plus accrued interest of $360. The bonds pay interest semiannually on February 1 and August 1.May 16. Purchased $132,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $330. The bonds pay interest semiannually on May 1 and November 1.Aug. 1. Received semiannual interest on the Smoke Bay bonds.Sept. 1. Sold $21,600 of Smoke Bay bonds at 103 plus accrued interest of $72.Nov. 1. Received semiannual interest on the Geotherma Co. bonds.Dec. 31 Accrued $432 interest on Smoke Bay bonds.Dec. 31 Accrued $660 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.(picture 1)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 ______ (fair value OR historical cost). This would be accomplished by using a valuation allowance account and ______ ( a realized gain [loss] OR an unrealized gain [loss]) account. DateDescriptionDebitCreditYear 1Apr. 1.May 16.Aug. 1.Sept. 1.Nov. 1.Dec. 31 Smoke BayYear 2Feb. 1.May 1.

Journal entry is the primary entry that records the financial transactions initially.

Answered: Rekya Mart Inc. is a general…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $54,000 of Smoke Bay 4%, 10-year bonds at their face amount plus accrued interest of $360. The bonds pay interest semiannually on February 1 and August 1.
May 16.		Purchased $132,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $330. The bonds pay interest semiannually on May 1 and November 1.
Aug. 1.		Received semiannual interest on the Smoke Bay bonds.
Sept. 1.		Sold $21,600 of Smoke Bay bonds at 103 plus accrued interest of $72.
Nov. 1.		Received semiannual interest on the Geotherma Co. bonds.
Dec. 31		Accrued $432 interest on Smoke Bay bonds.
Dec. 31		Accrued $660 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.

(picture 1)

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 ______ (fair value OR historical cost). This would be accomplished by using a valuation allowance account and ______ ( a realized gain [loss] OR an unrealized gain [loss]) account.

Date
Description
Debit
Credit
Year 1
Apr. 1.
May 16.
Aug. 1.
Sept. 1.
Nov. 1.
Dec. 31 Smoke Bay
Year 2
Feb. 1.
May 1.

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