P13-1A Davison Carecenters Inc. provides financing and capital to the health-care industry,

Price: $2.50


Davison Carecenters Inc. provides financing and capital to the health-care industry,
with a particular focus on nursing homes for the elderly. The following selected transactions relate
to bonds acquired as an investment by Davison, whose fiscal year ends on December 31.

2008
Jan. 1 Purchased at par $2,000,000 of Hannon Nursing Centers, Inc., 10-year, 8% bonds dated
January 1, 2008, directly from Hannon.
July 1 Received the semiannual interest on the Hannon bonds.
Dec. 31 Accrual of interest at year-end on the Hannon bonds.

(Assume that all intervening transactions and adjustments have been properly recorded and that
the number of bonds owned has not changed from December 31, 2008, to December 31, 2010.)

2011
Jan. 1 Received the semiannual interest on the Hannon bonds.
Jan. 1 Sold $1,000,000 Hannon bonds at 106. The broker deducted $6,000 for commissions
and fees on the sale.
July 1 Received the semiannual interest on the Hannon bonds.
Dec. 31 Accrual of interest at year-end on the Hannon bonds.

Instructions
(a) Journalize the listed transactions for the years 2008 and 2011.
(b) Assume that the fair value of the bonds at December 31, 2008, was $2,200,000.These bonds
are classified as available-for-sale securities. Prepare the adjusting entry to record these
bonds at fair value.
(c) Based on your analysis in part (b), show the balance sheet presentation of the bonds and interest
receivable at December 31, 2008. Assume the investments are considered long-term.
Indicate where any unrealized gain or loss is reported in the financial statements.