(L.O. 2) When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must:
Approach: Think of the requirements of the accrual basis of accounting: revenues are to be recognized when they are earned and expenses are to be recognized (recorded and reported) when they are incurred. Interest is earned by the passage of time and is usually collected after the time period for which it pertains. Thus, to comply with the revenue recognition principle, an adjusting entry is necessary to record the accrued revenue (revenue earned but not yet received). (Solution = a.)
(L.O. 5) At December 31, 2013, Bithlo Corporation reported the following for its portfolio of investments in marketable equity securities:
At December 31, 2014 the market value of the portfolio was $389,000. The cost of the portfolio ...