Question
1 . On October 1, 2011 Sassy Company purchased 10%, three-year bonds of Jeffry Corp., having a maturity value of $100,000, for $95,196.30. Interest rate
1. On October 1, 2011 Sassy Company purchased 10%, three-year bonds of Jeffry Corp., having a maturity value of $100,000, for $95,196.30. Interest rate of the same type of bond in market is 12%. The bonds pay interest annually on October 1 each year. Sassy Company intends to hold these bonds to collect contractual cash flows.
Required: 1 Prepare an amortization schedule for the bonds at the effective rate. 2 Prepare journal entry for the year of 2011 and 2012. 3 Prepare a presentation of investment in bonds in Statement of Financial Position (partial) at December 31, 2011. 4 On October 2, 2013 Jeffry Corps performance is outstanding, compared with competitors and, therefore, the fair value of these bonds increases to $120,000. Sassy Company decides to sell the bonds. Prepare journal entries to record the entry(s) on October 2, 2013. 5 What if these bonds were held for trading and the fair value of the bonds was $98,000 and 99,000 at the end of year 2011 and 2012; prepare journal entries on December 31 each year. Assume an allowance account is used for this trading securities.
2. Monkey Technology purchased as a long-term investment $800,000 of 8% quoted bonds, dated January 1, on January 1, 2012. The management intent to hold the bonds until maturity. For bonds of similar risk and maturity the market yield was 10%. The price paid for the bonds was $660,000. Interest is received semiannually on June 30 and December 31.
Required: 1. Prepare an amortization schedule for the bonds at the effective rate for year 2012 and 2013. 2. Prepare all necessary journal entries in the year 2012. 3. Assume February 1, 2013 the company sells the bonds for $720,000, included interest. Prepare the journal entries on Feb 1, 2013.
3. On January 1, 2016, Z Corp. had the following investments:
|
| Market | Maturity |
|
Classification | Investment | Value | Value | Cost |
available-for-sale | A Inc. stock | $1,900 |
| $1,800 |
available-for-sale | B Co. stock | 3,100 |
| 3,000 |
held-to-maturity | C Inc. bonds (due 12/31/2018) |
| $10,000 | 9,700 |
During the year, Z Corp. acquired M Co. stock for $1,000 and classified it as trading. The C Inc. bonds had a 10% stated interest rate, paid annually and had a December 31 amortized cost of $9,850. The A Inc. investment was transferred from AFS to trading on December 31 when the fair market value was $2,500. At year-end, the M Co. stock had a fair market value of $1,200, while the B Co. investment had a December 31 market value of $3,500. Z Corp. intends to hold all of its available-for-sale investments for at least one more year.
Required: 1. Record all necessary journal entries in 2016. The company uses an allowance account for adjusting the change in value of available-for-sale securities, while directly adjusts to investment account for trading securities. 2. Show all the investments including their relevant accounts in Statement of Financial Position and Statement of Comprehensive Income for the fiscal year 2016.
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