The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020. Mar. 31 Acquired 7% Distribution Transformers Corporation bonds costing $440,000 at face value. Sep. 1 Acquired $960,000 of American Instruments’ 9% bonds at face value. Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds. Oct. 2 Sold the Distribution Transformers bonds for $469,000. Nov. 1 Purchased $1,440,000 of M&D Corporation 5% 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 $ 906,000 M&D Corporation bonds $ 1,504,000 (Hint: Interest must be accrued.) Required: 1.Compute the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale. 2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments

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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The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar.	31	Acquired 7% Distribution Transformers Corporation bonds costing $440,000 at face value.
Sep.	1	Acquired $960,000 of American Instruments’ 9% bonds at face value.
Sep.	30	Received semiannual interest payment on the Distribution Transformers bonds.
Oct.	2	Sold the Distribution Transformers bonds for $469,000.
Nov.	1	Purchased $1,440,000 of M&D Corporation 5% 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	$	906,000
M&D Corporation bonds	$	1,504,000

(Hint: Interest must be accrued.)

Required:
1.Compute the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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