Rekya Mart Inc. is a general merchandise retail company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Rekya Mart Inc., which has a fiscal year ending on December 31: Year 1
Apr. 1. Purchased $36,000 of Smoke Bay 5%, 10-year bonds at their face amount plus accrued interest of $300. The bonds pay interest semiannually on February 1 and August 1.
May 16. Purchased $116,000 of Geotherma Co. 6%, 12-year bonds at their face amount plus accrued interest of $290. The bonds pay interest semiannually on May 1 and November 1.
Aug. 1. Received semiannual interest on the Smoke Bay bonds.
Sept. 1. Sold $14,400 of Smoke Bay bonds at 104 plus accrued interest of $60.
Nov. 1. Received semiannual interest on the Geotherma Co. bonds.
Dec. 31 Accrued $360 interest on Smoke Bay bonds.
Dec. 31 Accrued $580 interest on Geotherma Co. bonds.
Year 2
Feb. 1. Received semiannual interest on the Smoke Bay bonds.
May 1. Received semiannual interest on the Geotherma Co. bonds.
Required:
1. Journalize the entries to record these transactions. For a compound transaction, if an amount box does not require an entry, leave it blank.
Date Description Debit Credit
Year 1
Apr. 1.
May 16.
Aug. 1.
Sept. 1.
Nov. 1.
Dec. 31 Smoke Bay
Dec. 31 Geotherma Co.
Year 2
Feb. 1.
May 1.
2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?
If the bonds are classified as available-for-sale securities, then the portfolio of bonds would need to be adjusted to . This would be accomplished by using a valuation allowance account and account.