12

On 1/1/14, ABC Corporation purchased, as a held-to-maturity investment, $200,000 of the 8%, 5-year bonds of Intuit Corporation for $177,824,

which provides an 11% return. Prepare ABC's 12/31/14 journal entry to reflect the receipt of annual interest and discount amortization.

Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used.

Note: Notice that a discount account is not used for this investment. Therefore, for purposes of this adjusting entry, amortize the discount directly to the

14

On 1/1/14, ABC Corporation signed a 5-year noncancelable lease for a delivery vehicle. The terms of the lease called for ABC to Corporation to make

annual payments of $10,503 at the beginning of each year, starting January 1, 2014. The delivery vehicle has an estimated useful life of 6 years and a $7,000

unguaranteed residual value. The delivery vehicle reverts back to the lessor at the end of the lease term. ABC Corporation uses the straight-line method

of depreciation for the delivery vehicle. ABC Corporation's incremental borrowing rate is 10%, and the Lessor's implicit rate is unknown. No entries have yet

been made concerning this lease arrangement. After determining the type of lease arrangement (capital or operating), prepare the necessary multiple-part journal

entry for 2014 for ABC Corporation. (Hints: You will need to compute the present value of the minimum lease payments and 4 separate sub-entries for

this lease transaction. Also, for Statement of Cash Flow purposes, the principal portion of lease payments are correctly categorized as a financing activity.)

investment account.