Q-4:The following information relates to the debt investments ofWaterstones.1. On March 1, the company purchased 10% bonds ofGibbons ple having a par value of £200,000 at 100 plusaccrued interest. Interest is payable April 1 and October 1.2. On May 1, semiannual interest is reccived.3. On Aug 1, 8.5% bonds of Sampson, Inc. were purchased.These bonds with a par value of £200,000 were purchasedat 100 plus accrued interest. Interest dates are July 1 andJanuary 1.4. On October 1, bonds with a par value of £60,000,purchased on February 1, are sold at 99 plusaccrued interest.5. On Nivember1, semiannual interest is received.6. On January 1, semiannual interest is received.7. On December 31, the fair value of the bondspurchased February I and July I are 95 and 93,respectively.Required:a) Prepare any journal entries you consider necessary,including year-end entries (December 31), assumingthese investments are managed to profit from changesin market interest rates.b) Indicate how the journal entries will change ifWaterstones classified the investments as held-for-collection and selling.c) If Waterstones classified these as held-for-collectioninvestments, explain how the journal entries woulddiffer from those in part (a).d) Assume that Waterstones elects the fair value option forthese investments under the part (b) conditions. Brieflydiscuss how the accounting will change.

Journal entry is the primary entry that records the transactions initially.

The following information relates to the debt investments of Waterstones. 1. On March 1, the company purchased 10% bonds of Gibbons ple having a par value of £200,000 at 100 plus accrued interest. Interest is payable April 1 and October 1. 2. On May 1, semiannual interest is rececived. 3. On Aug 1, 8.5% bonds of Sampson, Inc. were purchased. These bonds with a par value of £200,000 were purchased at 100 plus accrued interest. Interest dates are July 1 and January 1.

The following information relates to the debt investments of Waterstones. 1. On March 1, the company purchased 10% bonds of Gibbons ple having a par value of £200,000 at 100 plus accrued interest. Interest is payable April 1 and October 1. 2. On May 1, semiannual interest is rececived. 3. On Aug 1, 8.5% bonds of Sampson, Inc. were purchased. These bonds with a par value of £200,000 were purchased at 100 plus accrued interest. Interest dates are July 1 and January 1.

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 5E

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