(1)
Held-to-maturity security: The debt securities which are held by the investor with an intent to hold the investment till its maturity, are referred to as held-to-maturity securities.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The purchase $240,000,000 of 6% bonds in the books of Corporation T
(2)
To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Corporation T
(3)
To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation T
(4)
To journalize: The sale of bonds on January 2, 2019 in the books of Corporation T
Want to see the full answer?
Check out a sample textbook solutionChapter 12 Solutions
Loose Leaf Intermediate Accounting
- 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.arrow_forwardNaval Inc. issued $200,000 face value bonds at a discount and received $190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is $5,000. This years balance sheet will show a net liability of ________. A. $200,000 B. $180,000 C. $195,000 D. $205,000arrow_forwardTransfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.arrow_forward
- Q1)Fuzzy Monkey Technologies purchased as a long-term investment $80 million of 8% quoted bonds, dated January 1, on January 1, 2012. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2012, was $70 million. Required: 1. Prepare the journal entry to record Fuzzy Monkey's investment on January 1, 2012. 2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2012 (at the effective rate). 3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31, 2012 (at the effective rate).arrow_forwardOn January 1, 2021, the company purchased 8% bonds in the face amount of P8,000,000. The bonds mature on January 1, 2026 and were purchased for P8,328,128 to yield 7%. Interest is payable annually every December 31. The business model for this investment is to collect contractual cash flows and to sell the bonds in the open market. Fair value Effective rate December 31, 2021 7,740,000 9% December 31, 2022 7,230,000 10% December 31, 2023 7,030,000 11% On December 31, 2023, the entity changed the business model to collect contractual cash flows only. On January 1, 2024, the fair of the bonds did not change. At what amount will the Financial asset-FVOCI be reclassified to Investment in bonds on January 1, 2024?arrow_forwardClient 7: The following data has been provided by your client, Hye Jin Corporation for their financial assets measured at FVOCI. On January 1, 2021, Hye Jin acquired P1,000,000, 10% bonds for P951,963. The principal is due on January 1, 2024 but interest is due annually every January 1. The effective interest rate is 12%. The bonds are measured at FVOCI. Information on fair values is as follows: December 31, 2021 98 December 31, 2022 103 13. How much is the value of the bonds on December 31, 2021? 14. Interest income recognized in 2022 15. Realized gain or loss from the investment in bonds on December 31, 2021 16. On January 1, 2023, Hye Jin sold all the bonds at 104. Calculate the gain on sale from the sale of bonds on January 1, 2023.arrow_forward
- ● Assume Sunset Company purchased this entire bond issue sold y Omar, i.e., 7% of $1,000,000 bonds, at $913,540 on January 1,2024. Market yield was 8% and interest is paid semiannually on June 30 and December 31. Sunset is holding the bond investment as trading securities. The fair value of the bonds on December 31, 2024 is $920,000. 1. At what amount will Sunset report this investment in the December 31, 2024 balance sheet? 2. What is the amount related to the bond investment that Sunset will report in its income statement for the year ended December 31, 2024? (Ignore income taxes.) 3. What is the amount related to the bond investment that Sunset will report in its statement of cash flows for the year ended December 31, 2024? Be sure to list the category of activity in which the cash flow is in. activities activitiesarrow_forwardAccounting for debt instruments purchased at a discount - FV-NI model On January 1, 2023, Pluto Corp. which follows ASPE acquired 6%, $100,000 (face value) bonds of Uranus Ltd., to yield 8%. The bonds were dated January 1, 2023, and mature on December 31, 2028, with interest payable each January 1. Pluto intends to hold the bonds to maturity and will use the FV-NI model and the effective interest method of amortization of bond premium or discount. Instructions Prepare the following entries in Pluto's books: a) Acquisition of bonds on January 1, 2023, b) Year-end adjusting entry at December 31, 2023, c) Receipt of the first interest payment on January 1, 2024. Round all values to the nearest dollar.arrow_forwardTOPICS: INVESTMENTS/DERIVATIVES On January 1, 2018, H Company purchased bondsfrom I CO. with face amount of P 3 500 000. Thebusiness model in managing the financial assets is tocollect contractual cash flow that are solely paymentsof principal and interest and also to sell the bonds inthe open market. The entity paid 3 680 250 for thebond investment.The bonds mature on December 31, 2020 and pay10% interest annually on December 31 each year with8% effective yield.The bonds are quoted at 95 on December 31, 2018 and90 on December 31, 2019. What is the carrying amount of the bondinvestment to be reported in December 31,2018? What is the unrealized gain or loss that shouldbe reported as component of othercomprehensive income in December 31,2018? What amount of interest income will bereported in December 31, 2019 What amount of cumulative unrealized gain orloss should be reported in the statement ofchanges in equity for 2019? Assume that H elected to value investments atmarket price. At…arrow_forward
- Q2) Fuzzy Monkey Technologies purchased as a long-term investment $80 million of 8% quoted bonds, dated January 1, on January 1, 2012. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2012, was $70 million. Required: 1. At what amount will Fuzzy Monkey report its investment in the December 31, 2012, statement of financial position? Why? 2. How would Fuzzy Monkey's 2012 statement of cash flows be affected by this investment?arrow_forwardExercise 12-2 (Algo) Securities held-to-maturity; bond investment; effective interest, premium [LO12-1] Mills Corporation acquired as a long-term investment $280 million of 6% bonds, dated July 1, on July 1, 2021. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield was 4% for bonds of similar risk and maturity. Mills paid $330.0 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2021, was $320.0 million. Required: 1.8 2. Prepare the journal entry to record Mills' investment in the bonds on July 1, 2021 and interest on December 31, 2021, at the effective (market) rate. 3. At what amount will Mills report its investment in the December 31, 2021, balance sheet? 4. Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January…arrow_forward18 A company issues P5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2022. Interest is paid on June 30 and December 31. The proceeds from the bonds are P4,901,036. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2022 statement of financial position? 4,903,160.00 4903160 4,903,160 4903160arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College