Problem 11-13 On January 1, 2019, Carmona Company purchased 10% bonds in the face amount of P3,000,000. The bonds mature on January 1, 2029 and were purchased for P3,405,000 to yield 8%. The entity used the effective interest method of amortization and interest is payable annually every December 31. The business model is to collect contractual cash flows composed of interest and principal. On December 31, 2020 the entity changed the business model for this investment to realize fair value changes. On January 1, 2021, the fair value of the bonds was P2,845,000 at an effective rate of 11%. 11. What amount should be reported as interest income for 2020? a. 337,740 b. 300,000 c. 272,400 d. 270,192

Problem 11-13 On January 1, 2019, Carmona Company purchased 10% bonds in the face amount of P3,000,000. The bonds mature on January 1, 2029 and were purchased for P3,405,000 to yield 8%. The entity used the effective interest method of amortization and interest is payable annually every December 31. The business model is to collect contractual cash flows composed of interest and principal. On December 31, 2020 the entity changed the business model for this investment to realize fair value changes. On January 1, 2021, the fair value of the bonds was P2,845,000 at an effective rate of 11%. 11. What amount should be reported as interest income for 2020? a. 337,740 b. 300,000 c. 272,400 d. 270,192

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 12MC: (Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to...

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Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.
MASTERY PROBLEM Jackson, Inc.s fiscal year ends December 31. Selected transactions for the period 20-1 through 20-8 involving bonds payable issued by Jackson are as follows: 20-1 Oct. 31 Issued 600,000 of 10-year, 7%, callable bonds dated October 31, 20-1, for 612,000. Interest is payable semiannually on October 31 and April 30. The bond indenture provides that Jackson is to pay to the trustee bank 20,000 by May 15 of each year (except the tenth year) as a sinking fund for the retirement of the bonds on call or at maturity. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds (straight-line method). 20-2 Jan. 2 Reversed the adjusting entry for interest payable and bond premium amortization. Apr. 30 Paid the semiannual interest on the bonds and amortized six months premium. May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. Dec. 31 Made the adjusting entry for interest payable and amortized two months premium on the bonds. 31 Sinking fund earnings for the year were 900. 20-8 May 15 Paid the sinking fund trustee 20,000. Oct. 31 Paid the semiannual interest on the bonds and amortized six months premium. 31 Redeemed the bonds, which were called at 97. The balance in the bond premium account is 3,600 after the payment of interest and amortization of premium have been entered. The cash balance in the sinking fund is 200,000, which is applied to the redemption. Jackson paid the sinking fund trustee the additional cash needed to pay off the bonds. (Hint: First make the entry for payment to the sinking fund, then make the entry for redemption of the bonds.) REQUIRED 1. Enter the preceding transactions in general journal form. 2. Calculate the carrying value of the bonds as of December 31, 20-2.
(Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of 75,000 for 50,000 cash and marketable securities having a current market value of 375,000. Pamlicos acquisition cost of the securities is 385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement? a. 65,000 b. 75,000 c. 140,000 d. 150,000
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Investment Premium Amortization Schedule On January 1, 2019, Lynch Company acquired 13% bonds with a face value of 50,000. The bonds pay interest on June 30 and December 31 and mature on December 31, 2021. Lynch paid 51,229.35, a price that yields a 12% effective annual interest rate. Required: 1. Record the purchase of the bonds. 2. Prepare an investment interest income and premium amortization schedule using the effective interest method. 3. Record the receipts of interest on June 30, 2019, and December 31, 2021.