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Accounting for bond investments
Otter Creek & Co. owns vast amounts of corporate bonds. Suppose Otter Creek buys $1,200,000 of RoastCo bonds at face value on January 2, 2016. The RoastCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2020. Otter Creek intends to hold the investment until maturity.
Requirements
1. How would the bond investment be classified on Otter Creek's December 31, 2016,
2. Journalize the following on Otter Creek's books:
a. Receipt of final interest payment on December 31, 2020
b. Disposal of the investment at maturity on December 31, 2020
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Chapter 10 Solutions
Horngren's Financial & Managerial Accounting Plus Mylab Accounting With Pearson Etext -- Access Card Package (5th Edition) (miller-nobles Et Al., The Horngren Accounting Series)
- Accounting for debt investments Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond investment until maturity. Requirements Journalize Hale and Sons’s transactions related to the bonds for 2018. Journalize the entry required on the Tyson Way bonds maturity date. (Assume the last interest payment has already been recorded.)arrow_forwardAccounting for debt investments Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys 51,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity Requirements Journalize any required 2018 entries for the bond investment. How much cash interest will Advance receive each year from FermaCo? How much interest revenue will Advance report during 2018 on this bond investment?arrow_forwardAccounting for debt investments Suppose Solomon Brothers purchases $500,000 of 6% annual bonds of Morin Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Solomon intends to hold the Morin bond investment until maturity. Requirements Journalize Solomon Brothers’s transactions related to the bonds for 2018. Journalize the entry required on the Morin bonds maturity date. (Assume the last interest payment has already been recorded.)arrow_forward
- Suppose Donahue Brothers purchases $750,000 of 6.5% annual bonds of McPhee Corporation at face value on January 1, 2024. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2033 Donahue intends to hold the McPhee bond investment until maturity Read the requirements Requirement 1. Journalize Donahue Brothers' transactions related to the bonds for 2024 (Record debits first, then credits Select the explanation on the last line of the journal entry table) Begin by journalizing Donahue Brothers' investment on January 1, 2024 Date Accounts and Explanation 2024 Jan 1 GETD Next, journalize the receipt of cash interest on June 30, 2024 Accounts and Explanation Date 2024 Jun 30 Journalize the receipt of cash interest on December 31, 2024 Accounts and Explanation Date 2024 Dec 31 Debit Accounts and Explanation Debit Debit Credit Debit Credit Requirement 2. Journalize the entry required on the McPhee bonds maturity date (Assume the last interest paymen has…arrow_forwardLeague Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $1,400,000 of RoastCo bonds at face value on January 2, 2018. The RoastCo bonds pay interest at the annual rate of 4% on June 30 and December 31 and mature on December 31, 2037. League Up intends to hold the investment until maturity. Requirements 1. Journalize any required 2018 entries for the bond investment. 2. How much cash interest will League Up receive each year from RoastCo? 3. How much interest revenue will League Up report during 2018 on this bond investment? ..... Requirement 1. Journalize any required 2018 entries for the bond investment. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) Begin by journalizing League Up's investment on January 2, 2018. Date Accounts and Explanation Debit Credit 2018 Course Chat O Time 1 GB V 19:11 DELLarrow_forwardLord Corporation acquired bonds with a face value of P3,000,000 for P2,800,000 on January 1, 2020. The bond has a stated interest of 10%, pays interest every December 31, and matures on December 31, 2022. Requirements:1. Prepare the necessary journal entries to record the above transactions.2. How much is the investment in bonds on December 31, 2020?3. Assuming that the bond is a serial bond and the P1,000,000 matures every December 31. Prepare the journal entries to record the transactions.4. The same information in No. 3, how much is the investment in bonds on December 31, 2020?arrow_forward
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- Assume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Determining bond prices and interest expense Jones Company is planning to issue 55490,000 of 9%, five-year bonds payable to borrow for a major expansion. The owner, Shane Jones, asks your advice on some related matters. Requirements Answer the following questions: a. At what type of bond price will Jones Company have total interest expense equal to the cash interest payments? b. Under which type of bond price will Jones Company’s total interest expense be greater than the cash interest payments? c. If the market interest rate is 12%, what type of bond price can Jones Company expect tor the bonds? 2. Compute the price of the bonds if the bonds are issued at 89. 3. How much will Jones Company pay in interest each year? How much will Jones Company’s interest expense be for the first year?arrow_forwardRequirement 3. Prepare a comprehensive income statement for Thyme Investments for year ended December 31, 2018. Assume net income was $320,000. (Use a minus sign or parentheses to enter a loss.) 2018 Jan. 5 Purchased Vince Company's $525,000 bond at face value. Thyme classified the investment as available-for-sale. The Vince bond pays interest at the annual rate of 6% on June 30 and December 31 and matures on December 31, 2021 Management's intent is to keep the bonds for several years . June 30 Received an interest payment from Vince Dec.31 Received an interest payment from Vince. Dec.31 Adjusted the investment to its current market value of $518.500 .arrow_forwardAssume bonds payable are amortized using the straight-line amortization method unless stated otherwise. Determining bond prices and interest expense Jones Company is planning to issue 55490,000 of 9%, five-year bonds payable to borrow for a major expansion. The owner, Shane Jones, asks your advice on some related matters. Requirements Answer the following questions: At what type of bond price will Jones Company have total interest expense equal to the cash interest payments? Under which type of bond price will Jones Company’s total interest expense be greater than the cash interest payments? If the market interest rate is 12%, what type of bond price can Jones Company expect tor the bonds? 2. Compute the price of the bonds if the bonds are issued at 89. 3. How much will Jones Company pay in interest each year? How much will Jones Company’s interest expense be for the first year?arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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