Question

The information below relates to Milton Company's trading debt securities in 2017 and 2018.

Prepare the journal entries for the following transactions.

January 1, 2017 Purchased $400,000 par value of GLF Company bonds at 97 plus accrued interest. The bonds pay interest annually at 9% each December 31. Broker's commission was $4,000.

September 1, 2017 Sold $200,000 par value of GLF Company bonds at 95 plus accrued interest. Broker's commission, taxes, and fees were $2,000.

December 31, 2017 Make the appropriate entry for the GLF Company bonds.

December 31, 2017 The market price of the GLF Company bonds at December 31 was 99: Make the appropriate entry.

December 31, 2018 Make the appropriate entry for the GLF Company bonds.

December 31, 2018 The market price of the GLF Company bonds at December 31 was 101. Make the appropriate entry.

Present the financial statement disclosure (balance sheet and income statement) of Milton Company's transactions in trading securities for each of the years 2017 and 2018. Appropriate financial statement subheadings must be disclosed.

Answer 1

Journal entries

January 1,2017

Debt Investments [(400000x0.97)+4000] 392,000

Cash 392,000

September 1,2017

Cash(190000+12000-2000) 200,000

Loss on Sale of Investments 8,000

Debt Investments 196,000

Interest Revenue 12,000

December 31,2017

Cash (200000*9%) 18,000

Interest Revenue 18,000

December 31,2017

Fair Value Adjustment (Trading) 2,000

Unrealised holding Gain or Loss Income 2,000

(198000-196000)

December 31,2018

Cash (200000*9%) 18,000

Interest Revenue 18,000

Fair Value Adjustment (Trading) 4,000

Unrealised holding Gain or Loss Income 4,000

(202000-198000)

Balance Sheet 2017 2018

Current Assets:

Equity Investment at fair value 196000 196000

Income Statement

Other revenue and Gains:

Interest Revenue 30000 18000

Unrealised Gain on Holding Securities 2000 4000

other expenses and losses:

Loss on sale of securities 8000 0