G H 1 Problem 11 premium, temporary impairment, AFSI 2 On June 30, 2020 ABC purchased $500,000 par value bonds dated June 30, 2020 at a purchase price of 3 $538,973. The coupon rate on the bonds is 6% per year and the purchase price of the bonds yield an 4 effective rate of 5% per year. The bonds pay interest semiannually on June 30 and December 31" and 5 mature on June 30, 2030. The fiscal year of ABC ends on December 31st. The fair market value of the 6 bonds on December 31, 2020 was 450,000. ABC received the December 31 interest payment on 7 December 31, 2020. ABC classifies the bonds as Available For Sale. 8 ABC does not intend to sell the bonds and it is highly unlikely that circumstances will force the company 9 to sell the bonds before the market price of the bonds recover. None of the bond impairment is due to a 10 deterioration in the credit worthiness of the issuer. 11 12 All questions below pertain to the accounting for the investment by ABC. 13 14 1. Prepare all journal entries related to the bond investment that is necessary for ABC to issue GAAP 15 compliant financial statements for the year ended December 31, 2020. 16 17 Enter your answer below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. 18 Entry to record purchase of bond on 6/30/2020: 19 20 Account Debit Credit 21 1 22 1 23 1 24 25 Entries at 12/31/2020: Debit Credit 27 Account 28 29 30 31 32 2 2 2 2 2 36 6 I I 37 38 2. What will be the post-adjustment December 31, 2020 amortized cost of the bond? 39 40 Enter your answer in the green box 3 41 42 3. What will be the post-adjustment December 31, 2020 balance in the Fair Value Adjustment account? 43 44 Enter your answer in the green box 4 45 46 4. What amount of interest revenue will be reported on the 2020 income statement? 47 48 Enter your answer in the green box 5 49 50 S. At what amount will the investment in bonds be reported in the asset section of the December 31, 2020 51 balance sheet? 52 53 Enter your answer in the green box 6 54 55 6. What amount of unrealized holding loss (if any) will be reported as a component of net income for the 56 year ended December 31, 2020? 57 58 Enter your answer in the green box 7 59 60 7. What amount of unrealized holding loss (if any) will be reported as a component of other 61 comprehensive income for the year ended December 31, 2020? 62 63 Enter your answer in the green box 64 65 8. Assume that ABC sold the bonds on January 2, 2021 for $451,000. Prepare all entries to record the 66 sale 67 68 Enter your answer below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. 69 Entry to record sale of bond on 1/2/2021: 70 Account Debit Credit 71 9 72 9 73 9 74 9 75 9 76 9 77 9 78 9 79 80 81 82 83 84 85 86 B D 1 Column1 2 Allowance for Credit Loss 3 Cash 4 Credit Loss 5 Discount on Bond 6 Dividend receivable 7 Dividend revenue 8 Equity in earnings of XYZ 9 Fair Value Adjustment 10 Interest Revenue 11 Investment in Bond 12 Investment in XYZ common stock 13 Loss on Impairment (NI) 14 Premium on Bond 15 Realized Gain on Sale of Bond 16 Realized Gain on Sale of Stock 17 Realized Loss on Sale of Bond 18 Reclassification adjustment - OCI 19 Unrealized Holding Gain - NI 20 Unrealized Holding Gain - OCI 21 Unrealized Holding Loss - NI 22 Unrealized Holding Loss - OCI 23 24 25 26 27 28 29 30 31 2
