Question
New Home, Inc. invested in the following bond issued by Old Home, Inc. on January 1, Yr1. The companys amortization schedule appears below: Date Cash
New Home, Inc. invested in the following bond issued by Old Home, Inc. on January 1, Yr1. The companys amortization schedule appears below:
Date | Cash Flow | Interest Revenue | Amortized Discount | Bond Discount | Book Value of Bond |
Fair Value |
1/1/Yr1 | $16,158 | ? |
| |||
6/30/Yr1 | ? | $11,692 | $1,692 | $14,466 | $235,534 | $240,000 |
12/31/Yr1 | ? | $11,777 | $1,777 | $12,689 | $237,311 | $242,000 |
6/30/Yr2 | ? | $11,866 | $1,866 | $10,824 | $239,176 | $244,000 |
12/31/Yr2 | ? | $11,959 | $1,959 | $ 8,865 | $241,135 | $246,000 |
6/30/Yr3 | ? | $12,057 | $2,057 | $ 6,808 | $243,192 | $248,000 |
12/31/Yr3 | ? | $12,160 | $2,160 | $ 4,649 | $245,351 | $250,000 |
6/30/Yr4 | ? | $12,268 | $2,268 | $ 2,381 | $247,619 | $252,000 |
12/31/Yr4 | ? | $12,381 | $2,381 | $ 0 | ? | $254,000 |
Use the amortization table to answer the following questions.
a) What is the maturity value of the bond?
b) How much cash did New Home, Inc. pay upon purchasing the bond?
c) If you were an investor that had purchased one fourth of the notes, how much interest would you receive during Yr3? How much interest would you have earned?
d) What interest rate and how many periods were used to determine the present value of the bond.
e) If New Home sold this bond (classified as trading security) on 1/10/Yr3 for $246,500, prepare the necessary journal entries for the sale.
f) If New Home sold this bond (classified as available for sale security) on 1/10/Yr3 for $244,500, prepare the necessary journal entries for the sale.
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