Concept explainers
(1)
(a)
Bonds
Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.
Straight line amortization bond
Adjusting entries refers to the entries that are made at the end of an accounting period in accordance with revenue recognition principle, and expenses recognition principle. The purpose of adjusting entries is to adjust the revenue, and the expenses during the period in which they actually occur.
To Prepare: The
(1)
(a)
Explanation of Solution
Prepare journal entry to record issuance of bonds by Incorporation WC (Issuer) on April 1, 2018 as shown below:
Date | Account Title and Explanation | Debit ($) |
Credit ($) |
|
2018 | Cash | 29,600,000 | ||
April | 1 | |||
Discount on Bonds Payable | 700,000 | |||
Bonds Payable | 30,000,000 | |||
Interest Payable | 300,000 | |||
(To record the issuance of bonds) |
Table (1)
Working notes:
Calculate the interest payable for 1 month (for March 2018) as shown below:
Hence, interest payable amount for one month is $300,000.
Calculatethe amount of cash received.
Hence, cash received amount is $29,600,000.
Calculate the amount of discount on bonds payable as shown below:
Hence, discount on bonds payable amount is $700,000.
- Cash is a current asset, and increased. Therefore, debit cash account for $29,600,000.
- Discount on bonds payable is a contra liability, and decreased. Therefore, debit discount on bonds payable account for $700,000.
- Bonds payable is a long term liability, and increased. Therefore, credit bonds payable account for $30,000,000.
- Interest payable is a current liability, and increased. Therefore, credit interest payable account for $300,000.
(b)
To Prepare: The journal entry to record investment on bonds of Corporation S as on April 1, 2018.
(b)
Explanation of Solution
Prepare the journal entry to record the investment on bonds of Corporation S as on 1st April 2018 as shown below:
Date | Account Title and Explanation | Debit ($) |
Credit ($) |
|
2018 | Bonds Investment (A+) | 30,000 | ||
April | 1 | |||
Interest Receivable (A+) | 300 | |||
Discount on Bonds Investment (L+) | 700 | |||
Cash (A–) | 29,600 | |||
(To record the purchase of bonds) |
Table (2)
Working notes:
Calculate the interest receivable for 1 month (for March 2018) as shown below:
Hence, interest receivable amount is $300.
Calculatethe amount of cash paid as shown below:
Hence, cash paid amount is $29,600.
Calculate the amount of discount on bonds investment as shown below:
Hence, discount on bonds payable amount is $700.
- Bond investment is a non – current asset, and increased. Therefore, debit bond investment account is $30,000.
- Interest receivable is a current asset, and increased. Therefore, debit interest receivable account is $300.
- Discount on bonds investment is a contra asset, and increased. Therefore, credit discount on bonds investment account for $700.
- Cash is a current asset, and decreased. Therefore, credit cash account for $29,600.
(2)
To Prepare: The journal entry to record all subsequent events through maturity (February 28, 2021) for Incorporation WC (Issuer).
(2)
Explanation of Solution
To Prepare: The journal entry to record all subsequent events through maturity (February 28, 2021) for Incorporation WC (Issuer).
Prepare the journal entry to record interest on August 31, 2018 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2018 | Interest Expense (E–) | 1,600,000 | ||||
August | 31 | Interest Payable (L–) | 300,000 | |||
Discount on Bonds Payable (L+) | 100,000 | |||||
Cash (A–) | 1,800,000 | |||||
(To record payment of semi-annual interest) |
Table (3)
Working notes:
Calculate discount on bonds payable per month as shown below:
Hence, discount on bonds payable per month is $20,000.
Calculate discount on bonds payable amount for 5 months as shown below:
Hence, discount on bonds payable amount for 5 months is $100,000.
Calculate the amount of cash paid as shown below:
Hence, cash paid amount is $1,800,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $1,600,000.
- Interest expense is a component of
stockholders’ equity , and decreased it. Therefore, debit interest expense account for $1,600,000. - Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $300,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $100,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the Journal entry to record interest on December 31, 2018 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||||
2016 | Interest Expense | 1,280,000 | ||||||
December | 31 | Discount on Bonds Payable | 80,000 | |||||
Interest Payable | 1,200,000 | |||||||
(To record interest accrued) |
Table (4)
Working notes:
Calculate discount on bonds payable for 4 months as shown below:
Hence, discount on bonds payable for 4 months amount is $80,000.
Calculate interest payable for 4 months as shown below:
Hence, interest payable amount is $1,200,000.
Calculatethe amount of interest expense as shown below:
Hence, interest expense amount is $1,280,000.
Prepare the journal entry to record interest on February 28, 2019 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2017 | Interest Expense (E–) | 640,000 | ||||
February | 28 | Interest Payable (L–) | 1,200,000 | |||
Discount on Bonds Payable (L+) | 40,000 | |||||
Cash (A–) | 1,800,000 | |||||
(To record payment of interest) |
Table (5)
Working notes:
Calculate discount on bonds payable for 2 months as shown below:
Hence, discount on bonds payable for 2 months is $40,000.
Calculate the amount of interest expense as shown below:
Hence, interest expenses amount is $640,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $640,000.
- Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $1,200,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $40,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the journal entry to record interest on August 31, 2019 as show below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2019 | Interest Expense | 1,920,000 | ||||
August | 31 | Discount on Bonds Payable | 120,000 | |||
Cash | 1,800,000 | |||||
(To record payment of semi-annual interest) |
Table (6)
Working notes:
Calculate discount on bonds payable for 6 months as shown below:
Hence, discount on bonds payable amount is $120,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $1,920,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $1,920,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $120,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the Journal entry to record interest on December 31, 2019 as shown below:
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
2019 | Interest Expense | 1,280,000 | ||||||
December | 31 | Discount on Bonds Payable | 80,000 | |||||
Interest Payable | 1,200,000 | |||||||
(To record interest accrued) |
Table (7)
Working notes:
Calculate the discount on bonds payable for 4 months.
Hence, discount on bonds payable amount is $80,000.
Calculate interest payable for 4 months as show below:
Hence, interest payable amount is $1,200,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $1,280,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $1,280,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $80,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the journal entry to record interest on February 28, 2020 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2020 | Interest Expense | 640,000 | ||||
February | 28 | Interest Payable | 1,200,000 | |||
Discount on Bonds Payable | 40,000 | |||||
Cash | 1,800,000 | |||||
(To record payment of interest) |
Table (8)
Working notes:
Calculate discount on bonds payable for 2 months as show below:
Hence, discount on bonds payable for 2 months is $40,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $640,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $640,000.
- Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $1,200,000.
- Discount on bonds payable is a contra liability, and decreased. Therefore, credit discount on bonds payable account for $40,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the journal entry to record interest on August 31, 2020 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2020 | Interest Expense | 1,920,000 | ||||
August | 31 | Discount on Bonds Payable | 120,000 | |||
Cash | 1,800,000 | |||||
(To record payment of semi-annual interest) |
Table (9)
Working notes:
Calculate discount on bonds payable for 6 months as shown below:
Hence, discount on bonds payable for 6 months amount is $120,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $1,920,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $1,280,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $80,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the journal entry to record interest on December 31, 2020 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2020 | Interest Expense | 1,280,000 | ||||
December | 31 | Discount on Bonds Payable | 80,000 | |||
Interest Payable | 1,200,000 | |||||
(To record interest expenses accrued) |
Table (10)
Working notes:
Calculate discount on bonds payable for 4 months as shown below:
Hence, discount on bonds payable for 4 months amount is $80,000.
Calculate interest payable for 4 months as shown below:
Hence, interest payable amount is $1,200,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $1,280,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $1,280,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $80,000.
- Interest payable is a current liability, and increased. Therefore, credit interest payable account for $1,200,000.
Prepare the journal entry to record interest on February 28, 2021 as shown below:
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
2021 | Interest Expense (E–) | 640,000 | ||||||
February | 31 | Interest Payable (L–) | 1,200,000 | |||||
Discount on Bonds Payable (L+) | 40,000 | |||||||
Cash (A–) | 1,800,000 | |||||||
(To record payment of interest) |
Table (11)
Working notes:
Calculate discount on bonds payable for 2 months as shown below:
Hence, discount on bonds payable amount is $40,000.
Calculate the amount of interest expense as shown below:
Hence, interest expense amount is $640,000.
- Interest expense is a component of stockholders’ equity, and decreased it. Therefore, debit interest expense account for $640,000.
- Interest payable is a current liability, and decreased. Therefore, debit interest payable account for $1,200,000.
- Discount on bonds payable is a contra liability, and increased. Therefore, credit discount on bonds payable account for $40,000.
- Cash is a current asset, and decreased. Therefore, credit cash account for $1,800,000.
Prepare the journal entry to record the retirement of the bond at maturity on February 28, 2021 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2021 | Bonds Payable | 30,000,000 | ||||
February | 28 | Cash | 30,000,000 | |||
(To record the retirement of bonds) |
Table (12)
Bonds payable is a long term liability, and decreased. Therefore, debit bonds payable account for $30,000,000.
Cash is a current asset, and decreased. Therefore, credit cash account for $30,000,000.
To Prepare: The journal entry to record all subsequent events through maturity (February 28, 2021) for Corporation S (Investor).
Prepare the journal entry to record interest on August 31, 2018 as shown below:
Date | Account Title and Explanation | Debit ($) |
Credit ($) | |||
2018 | Cash | 1,800 | ||||
August | 31 | Discount on Bonds Investment | 100 | |||
Interest Receivable | 300 | |||||
Interest Revenue | 1,600 | |||||
(To record semi-annual interest revenue) |
Table (13)
Working notes:
Calculate discount on bonds investment for 5 months as shown below:
Hence, discount on investment bonds amount is $100.
Calculate the amount of cash received.as shown below:
Hence, cash received amount is $1,800.
Calculate the amount of interest revenue as shown below:
Hence, interest revenue amount is $1,600.
- Cash is a current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bond investment is a contra asset, and decreased. Therefore, debit discount on bonds investment for $100.
- Interest receivable is a current asset, and decreased. Therefore, credit interest receivable account for $300.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,600.
Prepare the journal entry to record the interest receipt as on 31st December 2018 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2016 | Interest Receivable | 1,200 | ||||
December | 31 | Discount on Bonds Investment | 80 | |||
Interest Revenue | 1,280 | |||||
(To record interest receivable) |
Table (14)
Working notes:
Calculate interest receivable for 4 months as shown below:
Hence, interest receivable amount is $1,200.
Calculatediscount on bonds investment for 4 months as shown below:
Hence, discount on bonds investment is $80.
Calculate the interest revenue as shown below:
Hence, interest revenue amount is $1,280.
- Interest receivable is current asset, and increased. Therefore, debit interest receivable account for $1,200.
- Discount on bonds investment is a contra asset, and decreased. Therefore, debit discount on bonds payable account is $80.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,280.
Prepare the journal entry to record the interest receipt on 28th February 2019 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2019 | Cash | 1,800 | ||||
February | 28 | Discount on Bonds Investment | 40 | |||
Interest Receivable | 1,200 | |||||
Interest Revenue | 640 | |||||
(To record interest revenue) |
Table (15)
Working notes:
Calculate the amount of cash received as shown below:
Hence, cash received amount is $1,800.
Calculate the discount on bonds investment for 2 months as shown below:
Hence, discount on bonds investment amount is $40.
Calculatethe interest revenue as shown below:
Hence, interest revenue amount is $640.
- Cash is a current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bond investment is a contra asset, and decreased. Therefore, debit discount on bonds investment for $40.
- Interest receivable is a current asset, and decreased. Therefore, credit interest receivable account for $1,200.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $640.
Prepare the journal entry to record the interest receipt as on 31st August 2019 as shown below:
Date | Account Title and Explanation | Debit ($) |
Credit ($) | |||
2019 | Cash | 1,800 | ||||
August | 31 | Discount on Bonds Investment | 120 | |||
Interest Revenue | 1,920 | |||||
(To record semi-annual interest revenue) |
Table (16)
Working notes:
Calculatethe amount of cash received as shown below:
Hence, cash received amount is $1,800.
Calculatethe discount on bonds investment for 6 months as shown below:
Hence, discount on bonds payable amount is $120.
Calculatethe interest revenue as shown below:
Hence, interest revenue amount is $1,820.
- Cash is current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bonds investment is a contra asset, and decreased. Therefore, debit discount on bonds payable account is $120.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,920.
To Prepare: The journal entry to record interest on December 31, 2019
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2019 | Interest Receivable | 1,200 | ||||
December | 31 | Discount on Bonds Investment | 80 | |||
Interest Revenue | 1,280 | |||||
(To record interest receivable) |
Table (17)
Working notes:
Calculatethe interest receivable for 4 months.
Hence, interest receivable amount is $1,200.
Calculate the discount on bonds investment for 4 months
Hence, discount on bonds investment amount is $80.
Calculate interest revenue:
Hence, interest revenue amount is $1,280.
- Interest receivable is current asset, and increased. Therefore, debit interest receivable account for $1,200.
- Discount on bonds investment is a contra asset, and decreased. Therefore, debit discount on bonds payable account is $80.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,280.
Prepare the journal entry to record the interest receipt as on 28th February 2020 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2020 | Cash | 1,800 | ||||
February | 28 | Discount on Bonds Investment | 40 | |||
Interest Receivable | 1,200 | |||||
Interest Revenue | 640 | |||||
(To record interest revenue) |
Table (18)
Working notes:
Calculate the amount of cash received.
Hence, cash received amount is $1,800.
Calculate discount on bonds investment for 2 months.
Hence, discount on bonds investment for 2 months is $40.
Calculate interest revenue.
Hence, interest revenue amount is $640.
- Cash is a current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bond investment is a contra asset, and decreased. Therefore, debit discount on bonds investment for $40.
- Interest receivable is a current asset, and decreased. Therefore, credit interest receivable account for $1,200.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $640.
To Prepare: The journal entry to record interest on August 31, 2020.
Date | Account Title and Explanation | Debit ($) |
Credit ($) | |||
2020 | Cash | 1,800 | ||||
August | 31 | Discount on Bonds Investment | 120 | |||
Interest Revenue | 1,920 | |||||
(To record semi-annual interest revenue) |
Table (19)
Working notes:
Calculate the amount of cash received.
Hence, cash received amount is $1,800.
Calculate discount on bonds investment for 6 months:
Hence, discount on bonds investment for 6 months amount is $120.
Calculate the interest revenue.
Hence, interest revenue amount is $1,820.
- Cash is current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bonds investment is a contra asset, and decreased. Therefore, debit discount on bonds payable account is $120.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,920.
Prepare the journal entry to record the interest as on 31st December 2020 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2020 | Interest Receivable | 1,200 | ||||
December | 31 | Discount on Bonds Investment | 80 | |||
Interest Revenue | 1,280 | |||||
(To record interest receivable) |
Table (20)
Working notes:
Calculatethe interest receivable for 4 months.
Hence, interest receivable amount is $1,200.
Calculatethe discount on bonds investment for 4 months.
Hence, discount on bonds investment amount is $80.
Calculatethe interest revenue.
Hence, interest revenue amount is $1,280.
- Interest receivable is current asset, and increased. Therefore, debit interest receivable account for $1,200.
- Discount on bonds investment is a contra asset, and decreased. Therefore, debit discount on bonds payable account is $80.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $1,280.
Prepare the journal entry to record the interest as on 28th February 2021 as shown below:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2021 | Cash | 1,800 | ||||
February | 28 | Discount on Bonds Investment | 40 | |||
Interest Receivable | 1,200 | |||||
Interest Revenue | 640 | |||||
(To record interest revenue) |
Table (21)
Working notes:
Calculate the amount of cash received.
Hence, cash received amount is $1,800.
Calculatethe discount on bonds investment for 2 months.
Hence, discount on bonds investment amount is $40.
Calculatethe interest revenue.
Hence, interest revenue amount is $640.
- Cash is a current asset, and increased. Therefore, debit cash account for $1,800.
- Discount on bond investment is a contra asset, and decreased. Therefore, debit discount on bonds investment for $40.
- Interest receivable is a current asset, and decreased. Therefore, credit interest receivable account for $1,200.
- Interest revenue is a component of stockholders’ equity, and increased it. Therefore, credit interest revenue account for $640.
To Prepare: The Journal entry to record the retirement of the bond at maturity on February 28, 2021.
Date | Account Title and Explanation | Debit ($) | Credit ($) | |||
2021 | Cash (A+) | 30,000 | ||||
February | 28 | Bonds Investment (A–) | 30,000 | |||
(To record the retirement of bonds) |
Table (22)
- Cash is a current asset, and increased. Therefore, debit cash account for $30,000.
- Bonds investment is a non – current asset, and decreased. Therefore, credit bond investment account for $30,000.
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Chapter 14 Solutions
INTMED.ACCT LOOSE W/CONNECT ACCESS
- [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…arrow_forwardOo.82. Subject :- Account On January 1, 2020, Sunland Company purchased $360,000, 8% bonds of Aguirre Co. for $332,201. The bonds were purchased tovield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Sunland Companyuses the effective-interest method to amortize discount or premium. On January 1, 2022. Sunland Company sold the bonds for$333.764 after receiving interest to meet its liquidity needs. Prepare the amortization schedule for the bonds.arrow_forwardThis 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.arrow_forward
- P 16 On 1/10/2019 ABC company issued a $120,000, 12%, 4 years bonds. The bonds pay interest quarterly on 1/1 , 1/4,1/7 , and 1/10. The bonds were issued for 136,293.25, since the market rate was equal 8%. On 1/5 / 2021 the company called 75% of its outstanding at 102² Required: Based on the above given information, answer the following question: (a) What is the amount of interest expense that must be presented on ABC" Company income statement for the year ended December, 31, 2019? (b) What is the bond's carrying value that must be presented on the statement of financial position as on December, 31, 2020? (c) Prepare ALL the required journal entries for the year 2021.arrow_forward€ 17.4 (L01) (Debt Investments) Assume the same information as in E17.3 (in the picture)except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year end is as follows. 2019 $ 534.200 2020 $ 515,000 2021 $ 513,000 2022 $ 517,000 2023 $ 500,000 Instructions a. Prepare the journal entry at the date of the bond purchase. b. Prepare the journal entries to record the interest received and recognition of fair value for 2019. c. Prepare the journal entry to record the recognition of fair value for 2020. d. Discuss how the response to (c) will be different assuming Roosevelt has a strategy of held-for-collection and selling.arrow_forwardPROBLEM 22Chloe Glenn Company acquired P6,000,000, 5-year bonds with a stated rate of 10% on January 1,2020. The bonds were acquired to yield 8%. Interest is payable annually on December 31. At the endof the reporting period, the bond yields as follows:December 31, 2020 - 9%December 31, 2021 - 11%December 31, 2022 - 10%Requirements:1. Prepare the necessary journal entries to record the above transactions assuming the investmentis classified as trading security? Investment at FVTOCI? Investment at amortized cost?2. Compute the unrealized holding gain or loss of the investment, assuming the investment isclassified as trading security? Investment at FVTOCI? Investment at amortized cost?3. How much is the carrying value of the investment at each reporting period assuming theinvestment is classified as trading security? Investment at FVTOCI? Investment at amortizedcost?arrow_forward
- E17.3 (LO 1) (Entries for Held-to-Maturity Securities) On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category. Instructions a. Prepare the journal entry at the date of the bond purchase. b. Prepare a bond amortization schedule. c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020. d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021. E17.4 (LO 1) (Entries for Available-for-Sale Securities) Assume the same information as in E17.3 except that the securities are classified as available-for-sale. The fair value of the…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_forwardExercise 12-11 (Algo) Available-for-sale securities [LO12-1, 12-4] Mills Corporation acquired as a long-term investment $260 million of 7% bonds, dated July 1, on July 1, 2021. Company management has classified the bonds as an available-for-sale investment. The market interest rate (yield) was 5% for bonds of similar risk and maturity. Mills paid $320 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 $300 million. Required:1. & 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 2, 2022, for $330 million. Prepare the journal…arrow_forward
- BE17.1 (LO 1) Garfield Company purchased, on January 1, 2020, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield's journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used. BE17.2 (LO 1) Use the information from BE17.1 but assume the bonds are purchased as an available-for-sale security. Prepare Garfield's journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $75,500.arrow_forwardM 10 Selected transactions on the books of Sheridan Corporation follow:May 1, 2023 Bonds payable with a par value of $720,000, dated January 1, 2023, are sold at 109 plus accrued interest.They are coupon bonds, bear interest at 11% (payable annually at January 1), and mature on January 1, 2033. (Use int exp as accrued) Dec. 31Adjusting entries are made to record the accrued interest on the bonds and the amortization of the proper amount of premium (use the straight-line method) Jan. 1, 2024Interest on the bonds is paid. April 1Par value bonds of $360,000 are repurchased at 105 plus accrued interest and are retired. (Bond premium is to be amortized only at the year-end, Dec. 31Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortize(a) Assume that Sheridan follows ASPE. Prepare the journal entries for the transactions above. (Round answers to 0 decimal placesarrow_forwardE 16.3 Flynn Company purchased 70 Rinehart Company 6%, 10-year, $1,000 bonds on January 1, 2020, for $70,000. The bonds pay interest annually on January 1. On January 1, 2021, after receipt of interest, Flynn Company sold 40 of the bonds for $38,500. Instructions Prepare the journal entries to record the transactions described above.arrow_forward
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