Question 4: Investments Please note that this question has two independent parts. Part 1: On January 1, 2020, Hamilton Financial (HF) purchased a six-year, $150,000 bond from Think Plane Company for $128,551. The bond offers a 4% coupon rate and pays coupons annually on December 31 of each year. At the time of the purchase of this bond, the market rate on comparable securities was 7%. HF will use the following amortization table for this bond (numbers have been rounded to the nearest decimal, small rounding differences of up to $1 might occur): Difference Beginning Ending Coupon Interest Balance Fair Value (FV-BV) Date Balance 1/1/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2026| 0.00 2700 -400 128,551 128,551 6,000 8,999 131,549 6,000 9,208 134,758 6,000 9,433 138,191 6,000 9,673 141,864 6,000 9,930 145,794 6,000 10,206| 128,551 131,549 134,249 134,758 134,358 138,191 141,864 145,794 150,000 HF included this security in its portfolio of Available for Sale (AFS) marketable securities. A. Record HF's journal entries for this bond in 2020 and 2021 ignoring any tax effects. Please indicate whether unrealized gains/losses go through OCI or through net income.
Question 4: Investments Please note that this question has two independent parts. Part 1: On January 1, 2020, Hamilton Financial (HF) purchased a six-year, $150,000 bond from Think Plane Company for $128,551. The bond offers a 4% coupon rate and pays coupons annually on December 31 of each year. At the time of the purchase of this bond, the market rate on comparable securities was 7%. HF will use the following amortization table for this bond (numbers have been rounded to the nearest decimal, small rounding differences of up to $1 might occur): Difference Beginning Ending Coupon Interest Balance Fair Value (FV-BV) Date Balance 1/1/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2026| 0.00 2700 -400 128,551 128,551 6,000 8,999 131,549 6,000 9,208 134,758 6,000 9,433 138,191 6,000 9,673 141,864 6,000 9,930 145,794 6,000 10,206| 128,551 131,549 134,249 134,758 134,358 138,191 141,864 145,794 150,000 HF included this security in its portfolio of Available for Sale (AFS) marketable securities. A. Record HF's journal entries for this bond in 2020 and 2021 ignoring any tax effects. Please indicate whether unrealized gains/losses go through OCI or through net income.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter11: Notes, Bonds, And Leases
Section: Chapter Questions
Problem 22E
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Transcribed Image Text:Question 4: Investments
Please note that this question has two independent parts.
Part 1:
On January 1, 2020, Hamilton Financial (HF) purchased a six-year,
$150,000 bond from Think Plane Company for $128,551. The bond offers
a 4% coupon rate and pays coupons annually on December 31 of each
year. At the time of the purchase of this bond, the market rate on
comparable securities was 7%. HF will use the following amortization
table for this bond (numbers have been rounded to the nearest decimal,
small rounding differences of up to $1 might occur):
Difference
Beginning
Ending
(FV-BV)
Date Balance Coupon Interest Balance Fair Value
1/1/2020
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
12/31/2026
0.00
2700
-400
128,551
128,551
128,551 6,000 8,999
131,549 6,000 9,208
134,758 6,000 9,433
138,191 6,000 9,673
141,864 6,000 9,930
145,794 6,000 10,206
131,549
134,758
134,249
134,358
138,191
141,864
145,794
150,000
HF included this security in its portfolio of Available for Sale (AFS)
marketable securities.
A. Record HF's journal entries for this bond in 2020 and 2021 ignoring any
tax effects. Please indicate whether unrealized gains/losses go through
OCI or through net income.
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