1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To Journalize: The investment made by Company FM on January 1, 2018.
2.
To Journalize: The semiannual interest received by Company FM on June 30, 2018.
3.
To Journalize: The semiannual interest received by Company FM on December 31, 2018.
4.
To Calculate: The amount of investment to be recorded in the
5.
To Explain: The effect of investment by Company FM on December 31, 2018, in the statement of cash flows.
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Chapter 12 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any 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. Assume the company retires the bonds on June 30, 2020, at 103 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 amortizationarrow_forwardProblem 12-1 (Algo) Securities held-to-maturity; bond investment; effective interest; financial statement effects [LO12-1, 12-2] Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $120 million of 6% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $100 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, 2024, was $110 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (if more than one approach is possible. indicate the one that…arrow_forwardProblem #4 On February 1, 2021 Leslie's Linguine Ltd. purchased 630, 10-yr, $1,000 bonds for an amount which would generate a 5.0% annual rate of return. The bonds pay interest at an annual rate of 5.2% and the investment was purchased at a price Interest payments are made semi-annually on Feb. 1st and Aug. 1st. The investment is classified as Held to Maturity Securities. 1-Feb-21 Bond purchase 1-Aug-21 First semi-annual interest payment is received and amortization of discount or premium is recorded using the effective interest method. 31-Dec-21 The bonds are trading at $1,014 as of December 31, 2021 which is the company's year end. Interest is accrued. 1-Feb-22 Second semi-annual interest payment is received and amortization of discount or premium is recorded using the effective interest method. Instructions: Draft the appropriatejournal entries for the dates listed above.arrow_forward
- Problem 12-3 (Algo) Securities available-for-sale; bond investment; effective interest; financial statement effects [LO12-1, 12-4] Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment $60 million of 6% bonds, dated January 1, on Janua 1, 2024. Management intends to have the investment available for sale when circumstances warrant. For bonds of similar risk and maturity the market yield was 8%. The price paid for the bonds was $46 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, 2024, was $50 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4-6. At what amount will Fuzzy Monkey report its investment in the December 31, 2024, balance sheet? 4-b. Prepare the entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by…arrow_forwardFirm ZYX paid $94,111 on 1/1/y1 to purchase a bond with the following terms: • Par value - $100,000 ⚫ Stated Interest -10% • Market Interest - 11% • • Payments - Annually Maturity 1/1/y11 Required: What will be the reported value of the bond on 12/31/y1, when the market value was $92,256, if the bond is classified as an Available for Sale investment?arrow_forwardProblem 12 - 1 (Algo) Securities held - to - maturity; bond investment; effective interest; financial statement effects [LO12-1, 12-2] Fuzzy Monkey Technologies, Incorporated purchased as a long-term investment S 200 million of 10% bonds, dated January 1, on January 1, 2024. Management has the positive intent and ability to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $178 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, 2024, was $190 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4. At what amount will Fuzzy Monkey report its investment in the December 31, 2024 balance sheet? 5. How would Fuzzy Monkey's 2024 statement of cash flows be affected by this investment? (If more than one approach is possible, indicate the…arrow_forward
- Problem 1 On July 1, 2014, Norren Company paid P1, 198, 000 for 10% bonds with a face amount of P1, 000, 000 to be held to maturity. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the effective interest method to recognize interest income from this investment. What is the carrying amount of the bond investment on December 31, 2014? a. 1, 207, 900 b. 1, 198, 000 c. 1, 195, 920 d. 1, 193, 050arrow_forwardProblem #3 On July 1, 2019, Cody Company paid P1,198,000 of 10%, 20 year bonds with face amount of P1,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The effective interest method is used to recognize interest income from this long-term investment. What is the carrying amount of the investment in Bonds on December 31, 2019?arrow_forwardI only need part B Part AOn January 1, 2023, Baker Company purchased, as an investment, 5% bonds, having a maturity value of$150,000, for $138,400. The bonds provide the bondholders with a 7% yield. They are dated January 1,2023, and mature January 1, 2033, with interest receivable June 30 and December 31 of each year. BakerCompany uses the effective-interest method to allocate unamortized discount or premium. The bonds areclassified in the held-to-maturity category.a) Prepare the schedule of interest revenue and bond amortization from January 1, 2023 through December31, 2025.January 1, 2023June 30, 2023December 31, 2023June 30, 2024December 31, 2024June 30, 2025December 31, 2025b) Prepare the journal entry at the date of the bond purchase.c) Prepare the journal entry to record the interest received and the amortization for June 30, 2023.d) Prepare the journal entry to record the interest received and the amortization for December 31, 2025. Part B Assume the same information as…arrow_forward
- Completing a Bond Amortization Table (Effective Interest Rate) MacBride Enterprises sold $200,000 of bonds on December 31, 2018. A portion of the amortization table appears below. Period CashPayment(Credit) Interest Expense(Debit) Premium onBonds Payable(Debit) Premium on BondsPayable Balance(Credit) Bond PayableCarrying Value(Credit) At issue $6,457 $206,457 06/30/19 $9,000 $8,465 $535 5,922 205,922 12/31/19 9,000 8,443 557 5,365 205,365 06/30/20 9,000 8,420 580 4,785 204,785 12/31/20 ? ? ? ? ? Required: 1. Indicate the stated annual interest rate on these bonds.% 2. Calculate the effective annual interest rate on these bonds. (Note: Round to the nearest 0.1%.)%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_forwardOn January 1.2018, Ellison Company purchased 12% bonds, having a maturity value of C800,000, for €860,652. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2018, and mature January 1. 2023, with interest receivable December 31 of each year. Cash Interest Premium Carrying Amount Fair Value Date Received Revenue Amortized of Bonds 01/01/2018 860.652 31/12/2018 €96.000 €86.065 € 9,935 850,717 849,000 31/12/2019 96.000 85,072 10,928 839.789 842.152 The journal entry to be recorded 31/12/2018, Includesarrow_forward
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