P17-3 Available-for-Sale Investments

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.

Feb. 1, 2012 Sharapova Company common stock, $105 par, 210 shares 36,700

1-Apr U.S. government bonds, 12%, due April 1, 2022, interest payable April 1 and October 1, 111 bonds of $1,000 par each 111,000

1-Jul McGrath Company 12% bonds, par $50,600, dated March 1, 2012 purchased at 104 plus accrued interest, interest payable annually on March 1, due March 1, 2032 54,648


a. Prepare entries necessary to classify the amounts into proper accounts, assuming that all the securities are classified as available-for-sale.

b. Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2010, using the straight-line method. (Round answers to 0 decimal places, e.g. $2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually).

c. The fair values of the securities on December 31, 2010, were: Sharapova Company common stock 32,130

U.S. government bonds


McGrath Company bonds


What entry or entries, if any, would you recommend be made? (Round answers to 0 decimal places, e.g. 25,000.)

d. The U.S. government bonds were sold on July 1,2013, for $120,100 plus accrued interest. Give the proper entry.