Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Bonobos Balloons Inc. purchased the $60,000 par value bonds of Gnomes R Us on January 1, 2020. The coupon rate is 8% and the bonds

Bonobos Balloons Inc. purchased the $60,000 par value bonds of Gnomes R Us on January 1, 2020. The coupon rate is 8% and the bonds mature in 5 years. The market rate of interest is 12%. The bonds pay interest semi-annually every June 30 and December 31. The bonds were purchased for $51,167.90 and were classified as available-for-sale. Bonobos Balloons uses the effective-interest rate method to amortize bond discounts and premiums. At December 31, 2020, the market value of the bonds was $65,000. Bonobos Balloons sold the bonds on January 1, 2021, for $65,000.

Instructions

  1. Compute the carrying value of the investment at December 31, 2020.
  2. Compute the amount of interest revenue earned on this investment at June 30, 2020.
  3. Compute the amount of unrealized gain or loss recognized on December 31, 2020. In which financial statement should this amount be reported?
  4. Compute the amount of gain or loss recognized on the sale of the investment at January 1, 2021. In which financial statement should this amount be reported?
  5. If this investment was instead classified as held-to-maturity, how would this have affected the amount of unrealized gain or loss on December 31, 2020, and how would this have affected its reporting?

Computations:

Carrying value at December 31, 2020:

Interest revenue at June 30, 2020:

Unrealized gain/loss at December 31, 2020:

Gain or loss at January 1, 2021:

Requirement 5:

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Access Audit Handbook

Authors: (CAE) Centre For Accessible Environments

2013th Edition

1859464920, 978-1859464922

More Books

Students also viewed these Accounting questions