INTERMEDIATE ACCT VOL.2>CUSTOM<
9th Edition
ISBN: 9781307165067
Author: SPICELAND
Publisher: MCG/CREATE
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Textbook Question
Chapter 12, Problem 12.3E
Securities held-to-maturity
• LO12-1
FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T’s investment activities during the last two months of 2018. At November 1, FF&T held $48 million of 20-year, 10% bonds of Convenience, Inc., purchased May 1, 2018, at face value. Management has the positive intent and ability to hold the bonds until maturity. FF&T’s fiscal year ends on December 31.
Nov. 1 | Received semiannual interest of $2.4 million from the Convenience, Inc., bonds. |
Dec. 1 | Purchased 12% bonds of Facsimile Enterprises at their $30 million face value, to be held until they mature in 2024. Semiannual interest is payable May 31 and November 30. |
31 | Purchased U.S. Treasury bills to be held until they mature in two months for $8.9 million. |
31 | Recorded any necessary |
The fair values of the investments at December 31 were:
Convenience bonds | $44.7 million |
Facsimile Enterprises bonds | 30.9 million |
U.S. Treasury bills | 8.9 million |
Required:
Prepare the appropriate
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This is a variation of E 12–1 focusing on available-for-sale securities.]Tanner-UNF Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July1, 2018. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $200million for the bonds. The company will receive interest semiannually on June 30 and December 31. Companymanagement has classified the bonds as available-for-sale investments. As a result of changing market conditions,the fair value of the bonds at December 31, 2018, was $210 million.Required:1. Prepare the journal entry to record Tanner-UNF’s investment in the bonds on July 1, 2018.2. Prepare the journal entries by Tanner-UNF to record interest on December 31, 2018, at the effective (market)rate.
[This is a variation of E 12–2 focusing on available-for-sale securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018.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 $280 million for the bonds. The company willreceive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $270 million.Required:1. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018.2. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate.3. At what amount will Mills report its investment in the December 31, 2018, balance sheet? Why?4. Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell theinvestment on…
This is a variation of E 12–2 focusing on trading securities.]Mills Corporation acquired as a long-term investment $240 million of 6% bonds, dated July 1, on July 1, 2018.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 $280 million for the bonds. The company willreceive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fairvalue of the bonds at December 31, 2018, was $270 million.Required:1. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018.2. Prepare the journal entries by Mills to record interest on December 31, 2018, at the effective (market) rate.
Chapter 12 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
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