Problem
On December 31, 2019, Sumner Company held Wall Company bonds in its portfolio of trading securities. The bonds have a par value of $40,000, carry a 10% annual interest rate, mature in 2026, and had originally been purchased at par. The market value of the bonds on December 31, 2019 was $38,000.
On January 1, 2020, Sumner acquired bonds of Doherty Company with a par value of $30,000 for $30,200. The Doherty Company bonds carry an annual interest rate of 12% and mature on December 31, 2024. Additionally, on the same date, Sumner acquired Maggio Company bonds with a face value of $20,000 for $19,500. The Maggio Company bonds carry an 8% annual interest rate and mature on December 31, 2029. At the end of 2020, the respective market values of the bonds were: Wall, $39,000; Doherty, $31,000; and Maggio, $21,000. Sumner classifies all of the debt securities as trading. Assume that Sumner uses the straight-line method to amortize any discounts or premiums.
Task
a) Prepare the journal entries necessary to record the purchase of the investments on January 1, 2020, the annual interest payments on December 31, 2020, and the adjusting entry needed on December 31, 2020.
b) What would Sumner disclose on its December 31, 2020, balance sheet related to these investments?