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 135 Grocers\' Supply Corporation bonds for $607,500. 28 Received interest of $3,400 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 $641,250. Required: 1. Prepare the appropriate journal entry or entries for each transaction.

Solution

Date Account titles & Explanations Debit Credit 2018 17-Dec Investment in Grocer\'s Supply $607,500 cash $607,500 To Record investment made in Grocer\'s Supply 28-Dec Cash $3,400 Interest income $3,400 To Record received fo Interest Income 31-Dec Fair value adjustment $67,500 Unrealized holding gain or loss $67,500 ((5000*135)- 607500) TO Record Year End Adjustment 2019 05-Jan Cash $641,250 Gain on sale of investment $33,750 investment in Grocer\'s supply $607,500 To Record Sale of Investment