Reference no: EM132674147

The information below relates to Wynn Corporation's investments classified as trading securities in 2017:

1/1/17 Purchased $100,000 par value of Barr Company bonds at 98 with an annual yield of 10%. The bonds pay interest annually on 12/31. The annual interest rate is 9%.

9/5/17 Purchased 3,200 shares of Pine, Inc. common stock for $30 per share.

12/31/17 Received $9,000 interest for investments in Barr Company bonds for 2017 (note: the discount of the bond investments should be amortized using the effective interest method when recording the receipt of $9,000 interest).

12/31/17 The market prices of the investments at 12/31/2017 were: Pine Inc. common stock $25 per share and Barr company bonds, 99. The fair value adjustment account balance was a credit of $300 prior to the fair value adjustment on 12/31/2017.

7/2/18 Wynn sold half of Pine, Inc. common stock for $50,000.

Required:

Problem a. Prepare journal entries for the transactions occurred in 2017 (i.e., transactions on 1/1, 9/5 and 12/31) and make the appropriate entry to apply the fair market valuation for these investments on 12/31/2017.

Problem b. Record the transaction of 7/2/2018.

Problem c. If the management elected the fair value option for the debt investments in Barr, what would be the value of investments in Barr reported in 12/31/2017 balance sheet?

Problem d. Under the fair value option, on what statement would the unrealized gain or loss be reported?

Problem e. If the management reported the debt investments in Barr as held-to-maturity securities without electing the fair value option, what would be the value of investments in Barr reported on 12/31/2017 balance sheet?