3.
Investments: Companies invest in stocks and bonds of other companies or governmental entity to deploy their excess fund, and/or for a specific business strategy.
Held-to-maturity security: The debt securities which are held by the investor with intent to hold the investment till its maturity are referred to as held-to-maturity securities.
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.
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.
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 given transactions for Company C.
4.
To Complete: The given table.
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INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
- 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_forwardThis problem is a variation of P 12–3, modified to cause the investment to be accounted for under the fair value option.]Fuzzy Monkey Technologies, Inc., purchased as a long-term investment $80 million of 8% bonds, dated January 1, on January 1, 2018. Management intends to have the investment available for sale when circumstanceswarrant. When the company purchased the bonds, management elected to account for them under the fair valueoption. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $66million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, thefair value of the bonds at December 31, 2018, was $70 million.Required:1. Prepare the journal entry to record Fuzzy Monkey’s investment on January 1, 2018.2. Prepare the journal entry by Fuzzy Monkey to record interest on June 30, 2018 (at the effective rate).3. Prepare the journal entries by Fuzzy Monkey to record interest on December 31,…arrow_forwardDont uplode any image in answer Tanner-UNF Corporation acquired as a long-term investment $250 million of 4.0% bonds, dated July 1, on July 1, 2024. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 7% for bonds of similar risk and maturity. Tanner-UNF paid $220.0 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, 2024, was $220.0 million. Required: 1. & 2. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2024 and interest on December 31, 2024, at the effective (market) rate. 3. At what amount will Tanner-UNF report its investment in the December 31, 2024, balance sheet? 4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating Tanner-UNF to sell the investment on January 2, 2025, for $200.0 million. Prepare…arrow_forward
- I need help with requried 2 please Colah Company purchased $2,000,000 of Jackson, Inc., 6% bonds at par on July 1, 2021, with interest paid semi-annually. Colah determined that it should account for the bonds as an available-for-sale investment. At December 31, 2021, the Jackson bonds had a fair value of $2,300,000. Colah sold the Jackson bonds on July 1, 2022 for $1,800,000. Required:1. Prepare Colah’s journal entries for the following transactions: The purchase of the Jackson bonds on July 1. Interest revenue for the last half of 2021. Any year-end 2021 adjusting entries. Interest revenue for the first half of 2022. Any entries necessary upon sale of the Jackson bonds on July 1, 2022, including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. 2. Complete the following table to show the effect of the Jackson bonds on Colah’s net income, other comprehensive income, and comprehensive income for 2021, 2022, and cumulatively over…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_forwardBrief Exercise 12-5 (Static) Available-for-sale securities (LO12-4) S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2021, S&L purchased Coca-Cola bonds at par for $875,000 and sold the bonds on January 3, 2022, for $880,000. At December 31, the bonds had a fair volue of $873,000, and S&L has the intent and ability to hold the investment until fair value recovers. Prepare journal entries to record (a) any unrealized gains or losses occurring in 2021 and (b) the sale of the bonds in 2022, including recognition of any unrealized gains in 2022 prior to sale and reclassification of amounts out of OCI. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)arrow_forward
- (Fair Value Option) Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2017. This is Dawson Company’s first year of operations. Carrying Amount Fair Value(at December 31) Investment in debt securities (intent is to hold to maturity) $ 40,000 $ 41,000 Investment in Chen Company stock 800,000 910,000 Bonds payable 220,000 195,000 Instructions(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in 2017 before reporting any securities gains or losses, determine Dawson’s net income for 2017. Assume that the difference between the carrying value and fair value is due to credit deterioration.(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable.arrow_forwardExercise 12-12 (Algo) Available-for-sale securities; financial statement effects [LO12-1, 12- 4] Colah Company purchased $2,300,000 of Jackson, Incorporated, 6% bonds at par on July 1, 2024, with Interest paid semi-annually. Colah determined that it should account for the bonds as an available-for-sale Investment. At December 31, 2024, the Jackson bonds had a fair value of $2,630,000. Colah sold the Jackson bonds on July 1, 2025 for $2,070,000. Required: 1. Prepare Colah's Journal entries for the following transactions: a. The purchase of the Jackson bonds on July 1. b. Interest revenue for the last half of 2024. c. Any year-end 2024 adjusting entries. d. Interest revenue for the first half of 2025. e. Any entries necessary upon sale of the Jackson bonds on July 1, 2025, Including updating the fair-value adjustment, recording any reclassification adjustment, and recording the sale. 2. Complete the following table to show the effect of the Jackson bonds on Colah's net income, other…arrow_forwardI ONLY NEED ANSWER OF 16,17 &18 PLEASE KINDLY ANSWER Problem 3:On June 1, 2021, VIXEN Company received ₱1,077,200 plus accrued interest for 12% bonds with face amount of ₱1,000,000. The bonds were sold to yield 10%. Interest is payable semiannually every July 1 and December 31. The entity elected the fair value option for measuring financial liabilities. On December 31, 2020, the fair value of the bonds is at 108. The change in fair value of the bonds is attributable to market factors.Requirements:E. Prepare all necessary entries for calendar year 2021.F. Compute or provide the answers for the following:14. How much is initial valuation of the bonds?15. How much cash was received upon the sale of the bonds?16. How much is the interest expense for the year ended December 31, 2021?17. How much is the gain or loss from change in fair value of the bonds for 2021? (In the google form, if loss, put a negative sign before the numerical figure.)18. What is the carrying amount of the…arrow_forward
- On January 1, 2019, Apollo Corporation purchased 4-year P8,000,000, 10% bonds at face value. The entity paid P80,000 commission. Interest is payable annually every December 31. The bonds mature on December 31, 2022. The entity designated the bonds as FA at FVPL. The investment was sold on December 31, 2021 at fair value. The table below provides information regarding the prevailing market interest rate Date Rate 12-31-19 11% 12-31-20 12-31-21 12% 9% Based on the above and the result of the audit, determine the following: (Round off present value factors to four decimal places) Gain on sale of the investment on December 31, 2021arrow_forwardOn January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?arrow_forwardOn January 1, 2020, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31, 2022. The prevailing market rate for the bonds is 9% at December 31, 2020. If the bonds are classified as FA@FVTPL, the amount to be recognized as fair value adjustment loss in its 2020 profit or loss isarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning