Rantzow-Lear Company buys and sells debt securities expecting to earn profits on
ID: 2564607 • Letter: R
Question
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 170 Grocers' Supply Corporation bonds for $595,000 28 Received interest of $4,800 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 $4,000 per bond. 2019 Jan. 5 Sold the Grocers' Supply Corporation bonds for $646,000 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.)Explanation / Answer
SOLUTION
*Balance needed - $646,000 - $595,000 = $51,000
Fair value adjustment = $85,000 - $51,000 = $34,000
Date Account title and Explanation Debit ($) Credit ($) Dec. 17 Investment in Grocers’ Bonds 595,000 Cash 595,000 Dec. 28 Cash 4,800 Interest Revenue 4,800 Dec. 31 Fair Value Adjustment [($4,000 * 170) - $595,000] 85,000 Unrealized Holding Gain 85,000 Jan.5 2019 Unrealized Holding Gain 34,000* Fair Value Adjustment 34,000 Cash 646,000 Fair value adjustment 51,000 Investment in Grocer’s Supply Bonds 595,000 (To record the sale)Related Questions
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