On January 2, 2018 Pearl corporation purchased 10%, $1.500,000 bonds of Gold Company to yield 11%. The bonds are due December 31, 2027 and pay interest annually each December 31.Pearl intention is to generate profit from short-term differences in prices and accordingly, has classified the debt investment as trading. Following is a partial amortization schedule for these bonds extracted fromPearl's records:AMORTIZATION SCHEDULE10-Year, 10% Bonds Sold to Yield 11%CarryingCashInterestDiscountAmount ofDateReceivedRevenueAmortizedBonds1/2/18$1,411,65512/31/18???155.86???$150,000150,000???12/31/195,8631,422,80031.429,308???12/31/20150,000156,5086.50812/31/21150,000???12/31/22150,000158,0198,0191,444.551Required:a) Calculate the missing numbers in the previous table for the years 2018 and 2021.b) Assume that the fair value of the bonds on December 31, 2020, is $1.440,000. Prepare the necessary adjusting entryc) Show in proper format the effect on the income statement on December 31, 2020.d) Assume that on September 1, 2022, Pearl Corporation sold its Gold debt investment at 95:- Record the necessary amortization entry,- Calculate the gain or loss from the sale- Calculate the total cash received by Pearl corporation

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On January 2, 2018 Pearl corporation purchased 10%, $1.500 000 bonds of Gold Company to yield 11%. The bonds are due December 31, 2027 and pay interest annually each December 31 Pearl intention is to generate profit from short-term differences in prices and accordingly has classified the debt investment as trading. Following is a partial amortization schedule for these bonds extracted Pearl's records: AMORTIZATION SCHEDULE 10-Year, 10% Bonds Sold to Yield 11% Carrying Cash Interest Discount Amount of Date Received Revenue Amortized Bonds 1/2/18 $1.411,655 ??? 155,86 $150,000 ??? 5,863 12/31/18 ??? 12/31/19 150,000 1.422.800 3 156,508 ??? 1.429,308 ??? 12/31/20 150,000 6.508 12/31/21 150,000 12/31/22 150,000 158,019 8,019 1,444.551 Required: a) Calculate the missing numbers in the previous table for the years 2018 and 2021. b) Assume that the fair value of the bonds on December 31, 2020, is $1.440,000 Prepare the necessary adjusting entry c) Show in proper format the effect on thie income statement on December 31, 2020. d) Assume that on September 1, 2022, Pearl Corporation sold its Gold debt investment at 95: Record the necessary amortization entry,

On January 2, 2018 Pearl corporation purchased 10%, $1.500 000 bonds of Gold Company to yield 11%. The bonds are due December 31, 2027 and pay interest annually each December 31 Pearl intention is to generate profit from short-term differences in prices and accordingly has classified the debt investment as trading. Following is a partial amortization schedule for these bonds extracted Pearl's records: AMORTIZATION SCHEDULE 10-Year, 10% Bonds Sold to Yield 11% Carrying Cash Interest Discount Amount of Date Received Revenue Amortized Bonds 1/2/18 $1.411,655 ??? 155,86 $150,000 ??? 5,863 12/31/18 ??? 12/31/19 150,000 1.422.800 3 156,508 ??? 1.429,308 ??? 12/31/20 150,000 6.508 12/31/21 150,000 12/31/22 150,000 158,019 8,019 1,444.551 Required: a) Calculate the missing numbers in the previous table for the years 2018 and 2021. b) Assume that the fair value of the bonds on December 31, 2020, is $1.440,000 Prepare the necessary adjusting entry c) Show in proper format the effect on thie income statement on December 31, 2020. d) Assume that on September 1, 2022, Pearl Corporation sold its Gold debt investment at 95: Record the necessary amortization entry,

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

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 5P: Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and...

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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?
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