On July 1, 2014, Givarz Corporation, a public company, purchased $300,000 of Schuett Corp. 10-year, 3% bonds
Question:
On July 1, 2014, Givarz Corporation, a public company, purchased $300,000 of Schuett Corp. 10-year, 3% bonds at 91.8 when the market rate of interest was 4%. Interest is received semi-annually on July 1 and January 1. Givarz's year end is December 31. Givarz intends to hold the bonds until July 1, 2024, the date the bonds mature.
The bonds were trading at 96 on December 31, 2014.
Instructions
(a) Record the purchase of the bonds on July 1, 2014.
(b) Prepare the adjusting entries required at December 31, 2014.
(c) Show the financial presentation of the investment in Schuett Corp.'s bonds on December 31, 2014.
(d) Prepare the entry to record the receipt of interest on January 1, 2015.
(e) Prepare the entry to record the receipt of interest on July 1, 2015.
(f) Prepare the entry to record the repayment of the bonds on July 1, 2024. Assume the entry to record the last interest payment has been recorded.
(g) How would your answers to parts (b) through (e) change if the bonds were purchased for the purpose of trading?
Taking It Further
What was the market interest rate on December 31, 2014, when the bonds were trading at 96?
Step by Step Answer:
2014 a July 1 LongTerm Investments Schuett Bonds 275400 Cash 300000 918 275400 b Dec 31 Interest Rec...View the full answer
Accounting Principles Part 3
ISBN: 978-1118306802
6th Canadian edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow
