Answered: On January 1, 2019, Hyde Corporation… | bartleby

On January 1, 2019, Hyde Corporation purchased bonds with a face value of $300,000 for $308,373.53. The bonds the due June 30, 2022, carry a 13% stated interest rate,and were purchased to yield 12%. Interest is payable semiannually on June 30 and December 31. On March 31, 2020 in contemplation of a major aqusition, the company sold one-half the bonds for $159,500 including accrued interest; the remainder were held until maturity.Prepare the journal entries to record the purchase of the bonds, each interest payment the partial sale of the investment on March 31, 2020, and the retirement of the bond issue on June 30, 2022.

Intermediate Accounting: Reporting And Analysis

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

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On January 1, 2019, Hyde Corporation purchased bonds with a face value of $300,000 for $308,373.53. The bonds the due June 30, 2022, carry a 13% stated interest rate,and were purchased to yield 12%. Interest is payable semiannually on June 30 and December 31. On March 31, 2020 in contemplation of a major aqusition, the company sold one-half the bonds for $159,500 including accrued interest; the remainder were held until maturity.Prepare the journal entries to record the purchase of the bonds, each interest payment the partial sale of the investment on March 31, 2020, and the retirement of the bond issue on June 30, 2022.

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On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
Refer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest. On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-years bonds with a face value of 12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to record the purchase of these available-for-sale securities.

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