(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 M
(2)
To journalize: The receipt of semiannual interest on December 31, 2018 in the books of Corporation M
(3)
To indicate: The amount of investment value as on December 31, 2018 in the books of Corporation M
(4)
To journalize: The sale of bonds on January 2, 2019 in the books of Corporation M
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Intermediate Accounting
- (Appendix 14.1)Pamlico Company has a 500,000, 15%, 3-year note dated January 1, 2019, payable to Forest National Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of 75,000 for 50,000 cash and marketable securities having a current market value of 375,000. Pamlicos acquisition cost of the securities is 385,000. Ignoring income taxes, what amount should Pamlico report as a gain from the debt restructuring on its 2020 income statement? a. 65,000 b. 75,000 c. 140,000 d. 150,000arrow_forwardWilbury 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_forwardCornerstone Exercise Debt Issued at a Premium (Straight Line) Refer to the information for Ironman Steel above. Required: Prepare the amortization table for Ironman Steels bonds(Note: Round to the nearest dollar.) Use the following information for Cornerstone Exercises 9-31 and 9-32: Sicily Corporation issued $300,000 in 5% bonds (payable on December 31, 2029) on January 1, 2020, for $257,363. Interest is paid on June 30 and December 31. The market rate of interest is 7%.arrow_forward
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