Question

Rantzow-Lear Company buys and sells debt securities expecting to earn profits on short-term differences in price. The company’s fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear’s trading account occurred during December 2018 and the first week of 2019.

2018
Dec.		17		Purchased 145 Grocers' Supply Corporation bonds for $652,500.
		28		Received interest of $3,800 from the Grocers’ Supply Corporation bonds.
		31		Recorded any necessary adjusting entry relating to the Grocers' Supply Corporation bonds. The market price of the bonds were $5,000 per bond.
2019
Jan.		5		Sold the Grocers' Supply Corporation bonds for $688,750.

Answer 1

Date	General Journal	Debit	Credit
12/17/2018	Investment in Grocers’ Bonds	652,500
	Cash		652,500
12/28/2018	Cash	3,800
	Investment (Interest) Revenue		3,800
12/31/2018	Fair Value Adjustment	72500
	Unrealized Holding Gain		72500
	($5,000 x 145 - $652,500)
1/5/2019	Unrealized Holding Gain	36250
	Fair Value Adjustment		36250
	688,750-652,500 = 36250 72500-36250
	Cash	688750
	Fair Value Adjustment		36250
	Investment in Grocer’s Supply Bonds		652500
2
	Trading Securities
	Cost	652,500
	Fair Value Adjustment	72500	580,000
	Income Statement:
	Investment Revenue	3,800
	Unrealized Holding Gain	72500