ACCT 4310 Exam 2 Module D
17.1 Amortization schedule for Spangler's 5 year, $100,00 bond with a 7% interest rate and a 5% yield, purchased on 12/31/2018 for $108,660. Date Cash rec. Interest rev Bond Premium Amort Carrying amt 12/31/18 12/31/19 $7,000 $5,433 $1,567 $108,660 12/31/20 $7,000 5,354 1,646 12/31/21 $7,000 5,272 1,728 12/31/22 $7,000 5,186 1,814 12/31/23 $7,000 5,095 1,905 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Amort cost $107,093 $105,447 $103,719 $101,905 $100,000 Fair value 106,500 107,500 105,650 103,000 100,000 What are the formulas for all four columns?
Cash received = Purch price * interest rate Interest rev = Fair value * carrying amount Bond premium amortization = Cash received - interest rev Carrying amount of bonds - Bond premium amortization
17.2 On January 1, 2020, Novotna Company purchased $400,00, 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on 7/1/ and 1/1. The bonds mature on 1/1/25. Novotna Company uses the effective-interest method to amortize discount or premium. On 1/1/22, Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs. a. Prepare the J/E to record the purchase of bonds on 1/1. Assume that the bonds are classified as available-for-sale. b. Prepare the amortization schedule for the bonds. c. Prepare the J/E to record the semiannual interest on 7/1/20, and 12/31/20 d. If the fair value of Aguirre bonds is $372,726 on 12/31/21 prepare the necessary adjusting entry (Assume the fair value adjustment balance on 12/31/20 is a debit of $3,375.) e. Prepare the journal entry to record the sale of the bonds on 1/1/22
a. 1/1/20 DR Investments 369,114 CR Cash 369,114 b. Date Cash rec. Interest rev BP Amort Carrying amt 1/1/20 $369,114 7/1/20 $16,000 $18,456 $2,456 371,570 1/1/21 16,000 18,579 2,579 374,149 7/1/21 16,000 18,707 2,707 376,856 1/1/22 16,000 18,843 2,843 379,699 7/1/22 16,000 18,985 2,985 382,684 1/1/23 16,000 19,134 3,134 385,818 7/1/23 16,000 19,291 3,291 389,109 1/1/24 16,000 19,455 3,455 392,564 7/1/24 16,000 19,628 3,628 396,192 1/1/25 16,000 19,808 3,808 400,000 Total $160,000 $190,886 $30,886 Purchase price * interest rate / 2 (Semiannual) Fair Value * yield / 2 (Semiannual) c. 7/1/20 DR Cash 16,000 DR Debt Investments 2,456 CR Interest Revenue 18,456 12/31/20 DR Interest Receivable 16,000 DR Debt Investments 2,579 CR Interest Revenue 18,579 d. 12/31/21 Securities Available-for-sale cost FV Unrealized G/L Aguirre $379,699* $372,726 $(6,973) Previous FV 3,375 FV Adj. $(10,348) *Amort. cost of bonds on 12/31/21. See part b. e. 12/31/21 DR Unrealized holding G/L 10,348 CR FV Adj. 10,348 1/1/22 Selling price of bonds $370,726 Less: Amortized cost (379,699) Realized loss on sale of inv. $ (8,973) 1/1/22 DR Cash $370,726 DR Loss on Sale of Inv. 8,973 CR 379,699
17.1 Amortization schedule for Spangler's 5 year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on 12/31/2018 for $108,660. Date Cash rec. Interest rev Bond Premium Amort Carrying amt 12/31/18 12/31/19 $7,000 $5,433 $1,567 $108,660 12/31/20 $7,000 5,354 1,646 12/31/21 $7,000 5,272 1,728 12/31/22 $7,000 5,186 1,814 12/31/23 $7,000 5,095 1,905 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Amort cost $107,093 $105,447 $103,719 $101,905 $100,000 Fair value 106,500 107,500 105,650 103,000 100,000 a. Prepare J/E to record the purchase of these bonds on December 31, 2018, assuming the bones are classified as held to maturity securities. b. Prepare J/E related to the held-to-maturity bonds for 2019. c. Prepare J/E related to the held-to-maturity bonds for 2021. d. Prepare J/E to record the purchase of the bonds, assuming they are classified as available-for-sale. e. Prepare J/E related to the available-for-sale bonds for 2019. f. Prepare J/E related to the available-for-sale bonds for 2021.
a. 12/31/18 DR Investments 108,660 CR Cash 108,660 b. 12/31/19 DR Cash 7,000 CR Investments 1,567 CR Interest revenue 5,433 c. 12/31/19 DR Cash 7,000 CR Investments 1,728 CR Interest revenue 5,272 d. 12/31/18 DR Investments 108,660 CR Cash 108,660 e. 12/31/19 DR Cash 7,000 CR Investments 1,567 CR Interest revenue 5,433 DR Unrealized holding G/L 593 CR FV Adj. 593 Unrealized holding G/L ($107,093-$106,500) f. 12/31/21 DR Cash 7,000 CR Investments 1,728 CR Interest revenue 5,272 Amort. cost Fair Unrealized Value G/L Spangler Co, 7% bonds 103,719 105,650 $1,931 Previous FV Adj. 2,053 FV Adj.-CR $ (122) DR Unrealized holding G/L 122 CR FV Adj. 122