Question
On January 1, 2020, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were
On January 1, 2020, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000.
The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and
maturity. The bonds pay interest semiannually on January 1 and July 1June 30 and December 31 of each year. Rupar accounts for the bonds as
available-for-sales securities, and uses the effective interest method. In Rupar's December 31, 2020,
1- Assuming a fair value of $93,000 for these bonds On December 31, the journal entry, if any, needed to adjust from the
carrying value to fair value would be:
Debit Credit
a. Unrealized holding loss(Other comprehensive income) ... $2,661
Fair value adjustment . $2,661
b. Fair value adjustment 2,661
Unrealized holding gain (Other comprehensive income) 2,661
c. Unrealizes holding loss(Income statement). 2,661
Fair value adjustment 2,661
.................................................................................
d. Fair value adjustment. 2,661
unrealized holding gain(Income statement) 2,661
e. None of the above
2. The journal entry , if any, needed to record the interest received by Rupar on
December 31, 2020 would be:
Debit Credit
a. Cash ... $3,000
Discount on bond investment.. $3,000
b. Interest receivable 3,000
Interest revenue. 3,000
c. Investment in bonds 3,000
Fair value adjustment 3,000
d. Cash. 3,000
Discount on bond investment. 336
Interest revenue 3,336
e. None of the above
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