Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Other-than-temporary (OTT) impairment: When the market value of an investment declines to a value lower than its cost, it is referred to as OTT impairment.
Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.
Net income: Net income is the excess amount of revenuewhich is arises after deducting all the expenses of a company. In simply, it is the difference between total revenue and total expenses of the company.
Other Comprehensive income: OCI includes all financial items which result in changes in the
To Journalize: The entries to account for fair value changes during 2018 and 2019.
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Loose Leaf Intermediate Accounting
- 1. Sandhill Company purchased, on January 1, 2025, as an available-for-sale security, $440,000 of the 6%, 5-year bonds of Oak Corporation for $380,203, which provides an 8% return. The bonds pay interest semi-annually on June 30th and December 31st. For this case, prepare an amortization table. Use the effective-interest method for discount and premium amortization (construct an amortization table). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.) Maturity Value of Bonds Purchase Price of Bonds Stated Interest Rate Bond Yield Rate Interest Payment Term (fraction of annual) Date Cash Received Interest Revenue Bond Discount Amortization Carrying Amount of Bonds 1/1/2025 6/30/2025 12/31/2025 6/30/2026 12/31/2026 6/30/2027 12/31/2027 6/30/2028 12/31/2028 6/30/2029 12/31/2029 6/30/2030…arrow_forward39. On August 1, 2004, Bettis Company acquired P120,000 face value, 10% bonds of Hanson Corporation at 104 plus accrued interest. The bonds were dated May 1, 2004, and mature on April 30, 2009, with interest payable each October 31 and April 30. The bonds are classified as subsequently measured at amortized cost. What entry should Bettis make to record the purchase of the bonds on August 1, 2004? A. Investment in bonds Interest Revenue Cash B. Investment in bonds Cash C. Investment in bonds Interest Revenue Cash 124,800 3,000 127,800 127,800 D. Held-to-Maturity Securities 120,000 Premium on Bonds 7,800 127,800 127,800 3,000 124,800arrow_forward2. Carow SA purchased on January 1, 2019, as a held-for- collection investment, €50,000 of the 8%, 5-year bonds of Harrison, Inc. for €65,000, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow's journal entries for (a). the purchase of the investment, and (b). the receipt of semiannual interest and premium amortization.arrow_forward
- On July 1, 2016, York Company purchased a long-term investment, P1,000,000 of Park Company's 8% bonds for P946,000, including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2022, and pay interest annually on January 1. York Company used the effective interest method of amortization. 1. What is the interest income for 2016? a. 80,000 b. 90,600 C. 45,300 d. 40,000 2. On December 31, 2016, what is the carrying amount of the investment in bonds? a. 911,300 b. 916,600 c. 953,300 d. 960,600arrow_forwardOn January 1, 2022, BTS Company purchased 3,000, P1,000 face value term bons with a stated rate of 10% as at amortized cost. The bonds pay interest annually on December 31 and will be redeemed entirely by the issuer on December 31, 2025. The bond investment was purchased for P2,819,100 at an effective rate of 12%.On December 31, 2023, the entity changes business model for managing its financial assets and this investment as reclassified as debt investments at fair value through profit or loss. On this date, the bonds are quoted at 101. What is the carrying value of the debt investment on December 31, 2023 prior to reclassification?arrow_forwardRecording Entries for Impairment of Investments—AFS Atlanta Inc. holds an AFS bond investment in Falcons Corporation. The amortized cost of the investment is $351,250 on December 31, 2020. Atlanta Inc. estimates the fair value of the bonds to be $325,000. The unrealized loss of $26,250 is partially due to a credit loss of $20,000, with the remaining portion due to other factors. The company adjusted the AFS bonds to fair value through OCI on December 31, 2020. a. Record the impairment loss on December 31, 2020, assuming that the company does not intend to sell the investment and does not believe it is more likely than not that it will be required to sell the investment before recovery of any unrealized loss.b. Record the impairment loss on December 31, 2020, now assuming that the company intends to sell the investment. Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. a. Dec. 31, 2020 Answer Answer…arrow_forward
- Recording Entries for Impairment of Investments–AFS Atlanta Inc. holds an AFS bond investment in Falcons Corporation. The amortized cost of the investment is $84,300 on December 31, 2020. Atlanta Inc. estimates the fair value of the bonds to be $78,000. The unrealized loss of $6,300 is partially due to a credit loss of $4,800, with the remaining portion due to other factors. The company adjusted the AFS bonds to fair value through OCI on December 31, 2020. a. Record the impairment loss on December 31, 2020, assuming that the company does not intend to sell the investment and does not believe it is more likely than not that it will be required to sell the investment before recovery of any unrealized loss. b. Record the impairment loss on December 31, 2020, now assuming that the company intends to sell the investment. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. a. Dec. 31, 2020 Unrealized Gain or Loss--OCI 1500 Allowance for…arrow_forwardOn 1/1/23, Jeckle Technologies Inc. paid $4, 792, 085 to acquire $5,000,000 in bonds that mature in 5 years. The bonds pay interest semi - annually at 6% per annum on 6/30 and 12/31. The fair value of the bonds at 12/31/23 was $4, 930, 392. Required: • Prepare the 2023 journal entries if the investment is classified as (i) HTM or (ii) AFS. • Assume Jeckle sold the bond investment on 7/1/24 for $4,890,000. Prepare the required journal entries assuming the bond is classified as (i) HTM or (ii) AFS.arrow_forwardBE17.1 (LO 1) Garfield Company purchased, on January 1, 2020, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield's journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used. BE17.2 (LO 1) Use the information from BE17.1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield's journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.arrow_forward
- 43 Sycamore, Inc. purchased P100,000 of 8 percent bonds of Alvarado Industries on January 1, 2022, at a discount, paying P92,278. The bonds mature January 1, 2027, and yield 10 percent; interest is payable each July 1 and January 1. Sycamore has a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset provides specified dates with regard to cash flows that are solely payments of principal and interest. On December 31, 2022, when the market rate of interest is 12%, and the fair value of the bonds is P89,934, Sycamore will record interest revenue in 2022 of?arrow_forwardPT ABC purchased Rp300.000 of 8%, 5-year bonds from PT DEF on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for Rp312.474 at an effective interest rate of 7%. Using the effective interest method, PT ABC decreased the non-trading Debt Investments account for the PT DEF bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of Rp1.062 and Rp1.098, respectively. At December 31, 2018, the fair value of the PT DEF bonds was Rp318.000. What should PT ABC report as other comprehensive income and as a separate component of equity? * Rp5.526 Rp2.160 Rp7.686 O Rp0arrow_forwardOn January 1, 2022, BTS Company purchased as debt investments at amortized cost, P1,000,000 of JK Company’s 8% for 906,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2032 and pay interest semi-annually on January 1 and July 1. BTS uses the effective interest method of amortization. In its December 31, 2022 statement of comprehensive income, what amount should BTS report as interest revenue?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning