Question

On February 1, 2018, Bell Co. decides to invest excess cash of $16,800 by purchasing a Grant, Inc. bond at face value. Art year-end, December 31, 2018, the fair value of the Grant bond was $19,600. The investment is categorized as a trading debt investment. Required: a. Journalize the transactions for Bell's investment in Grant, Inc. for 2018. b. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant's bond be reported, if at all? c. What was the net effect of the investment on Bell's net income for the year ended December 31, 2018?

Answer 1

Explained below

Step-by-step explanation:

1. Journal Entry

DEBIT CREDIT

Debt Investment $16,800

Cash $16,800

2.

It will be categorized as available for sale trading debt investment

Face value = $16,800

Market value = $19,600

Unrealized gain(19,600-16,800) = $2,800

Debit investment are reported at market value in the balance sheet

The Unrealized gain will be shown in other comprehensive income and as a component of accumulated other comprehensive income in the equity section of the balance sheet.

3.

The net effect of the investment on Bell's on net income is $2800 and unrealized holding gain in other comprehensive income