Question
On January 1, 2017, the Plaid Company acquired a $5 million face value bond that has a 7% coupon interest rate (paying interest annually on
On January 1, 2017, the Plaid Company acquired a $5 million face value bond that has a 7% coupon interest rate (paying interest annually on December 31). The bond matures on December 31, 2022. On January 1, 2017, the market yield for bonds of equivalent risk and maturity was 5%. Plaid paid $5,500,000 for this bond. The fair value of the bond is $5,200,000 and $5,000,000 respectively on Dec 31, 2017 and Dec 31, 2018.
Requirements:
- Assume the bond investment is classified as held to maturity, prepare an amortization table for the bond from Jan 1, 2017 to Dec 31, 2018.
- Assume the bond investment is classified as available for sale, provide journal entries related to the bond investment on December 31, 2017 and December 31, 2018.
- Assume the bond investment is classified as held for trading, provide journal entries related to the bond investment on December 31, 2017 and December 31, 2018.
- How much would the balance sheet value of this bond be on December 31, 2017 and December 31, 2018 under each of the three classifications?
Please use the table provided to write your answers for d).
Show computations in steps for partial marks.
|
Balance Sheet | |||
|
| 2017 |
| 2018 |
| Held To Maturity Bond Investment |
|
|
|
| Available For Sale Bond Investment |
|
|
|
| Held For Trading Bond Investment |
|
|
|
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Finite Mathematics and Its Applications
Authors: Larry J. Goldstein, David I. Schneider, Martha J. Siegel, Steven Hair
12th edition
978-0134768632
