Question

Bramble Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions. Feb. 1, 2020 Sharapova Company common stock, $110 par, 220 shares $36,300 April 1 U.S. government bonds, 12%, due April 1, 2030, interest payable April 1 and October 1, 108 bonds of $1,000 par each 108,000 July 1 McGrath Company 12% bonds, par $53,500, dated March 1, 2020, purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2040 57,780. Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale.

Answer 1

Here is the answer for my numbers:

Debt Investments $164,680

Equity Investments $36,740

Interest Revenue $2,180

Investments $203,600

Step-by-step explanation:

The debit to equity investment is equal to the BV of the stocks. This is given in the problem.

= 36,740

The debit to accrued interest on the bonds is calculated as follows:

= 54,500 * 12% * (4/12)

= 2,180

That number is used as a debit to Interest Revenue.

The debit to debt investment is equal to the U.S. Bonds, plus the McGrath Bonds, minus accrued interest.

= 108,000 + (58,860 - 2,180)

The credit to Investments should equal the debits.

Answer 2

Feb 1. 2020

Cash (DR) $36,300

Common stock (CR) $24,200

Stock premium (CR) $12,100

April 1. 2020

Debt investment available for sale (DR) $163,120 (108,000+55,120,)

Equity investment available for sale (DR) $ 36,300

Interest revenue (DR) $2,675 (53,500*12%*5/12)

Investments (CR) $202,070

Step-by-step explanation:

The entries are to be recorded are as follows:

Feb 1. 2020

Cash (DR) $36,300

Common stock (CR) $24,200

Stock premium (CR) $12,100

April 1. 2020

Debt investment available for sale (DR) $163,120 (108,000+55,120,)

Equity investment available for sale (DR) $ 36,300

Interest revenue (DR) $2,675 (53,500*12%*5/12)

Investments (CR) $202,070