RantzowLear Company buys and sells debt securities expecting

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 Required 1. Prepare the appropriate journal entry or entries for each transaction. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.) View transaction list View journal entry worksheet Date General Journal Debit Credit December 17, Investment in Grocers\' Supply bonds 652,500 2018 Cash 652,500 2. Indicate any amounts that Rantzow-Lear Company would report in its 2018 balance sheet and income statement as a result of this investment. Balance Sheet (short-term investment) Income Statement:

Solution

Date Explanation Debit Credit 12/17/2018 Invest in Grocers’ Supply Bonds 652500 Cash 652500 12/28/2018 Cash 3800 Interest revenue 3800 12/31/2018 Fair Value Adjustment 72500 Net Unrealized holding g/l 72500 5000x145-652,500 01/05/2019 Cash 688750 Gains on investments (to balance) 36250 Invest in Grocers’ Supply Bonds 652500 12/31/2019 If no other trading securities: Adjusting entries as follows Net unrealized holding g/l 36250 Fair Value Adjustment 36250 2 Balance Sheet (short-term investment) Trading Securites Cost 652500 Fair Value Adjustment 72500 725000 Income Statement Net unrealized holding gains and losses 72500 Investment revenue 3800