Gaelic Industries Inc. is an athletic footwear company that began operations on January 1, 2016. The following transactions relate to debt investments acquired by Gaelic Industries Inc., which has a fiscal year ending on December 31:

Record these transactions

2016
May	1	Purchased $75,000 of Avery Co. 7%, 15-year bonds at their face amount plus accrued interest of $875. The bonds pay interest semiannually on March 1 and September 1.
	16	Purchased $60,000 of Clawhammer 6%, 10-year bonds at their face amount plus accrued interest of $150. The bonds pay interest semiannually on May 1 and November 1.
Sept.	1	Received semiannual interest on the Avery Co. bonds.
	30	Sold $30,000 of Avery Co. bonds at 98 plus accrued interest of $175.
Nov.	1	Received semiannual interest on the Clawhammer bonds.
Dec.	31	Accrued $1,050 interest on the Avery Co. bonds.
	31	Accrued $600 interest on the Clawhammer bonds.

Record these transactions on page 11

2017
Mar.	1	Received semiannual interest on the Avery Co. bonds.
May	1	Received semiannual interest on the Clawhammer bonds.

Required:

1.	Journalize the entries to record these transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. In your computations, round per share amounts to two decimal places.
2.	If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

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Chart of Accounts

CHART OF ACCOUNTS

Gaelic Industries Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Avery Co. Bonds
162	Investments-Clawhammer Bonds
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

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Journal

1. Journalize the entries to record the transactions. Be sure to enter the year as part of the date for the first entry on each page. Refer to the information given and the Chart of Accounts provided for the exact wording of the answer choices for text entries. In your computations, round per share amounts to two decimal places.

PAGE 10PAGE 11

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17		Adjusting Entries
18
19
20
21
1
2
3
4
5
6

Solution

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17		Adjusting Entries
18
19
20
21
1
2
3
4
5
6

Points:

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Explanation

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Final Question

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 to be selector 1 kept at their original cost adjusted to fair value. This would be accomplished by using a valuation allowance account and an unrealized gain (loss) account as part of selector 2 other income and expenses stockholders’ equity. If the fair value were selector 3 lesser greater than the cost of the bond portfolio, the two accounts would be positive, and thus added to investments and stockholders’ equity, respectively. If the fair value were selector 4 greater less than the cost of the bond portfolio, the two accounts would be negative , and thus subtracted from investments and stockholders’ equity, respectively.

Points:

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Explanation

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Answer rating: 100% (QA)

Answer Explanation 1 Prepare the following journal entries to record the transactions Date Account T... View the full answer