Question
On January 1, 2022, Candy Construction sold $1,000,000 of 6% bonds to Lynch Enterprise. The bonds mature on December 31, 2025 (4 years). For bonds
On January 1, 2022, Candy Construction sold $1,000,000 of 6% bonds to Lynch Enterprise. The bonds mature on December 31, 2025 (4 years). For bonds of similar risk and maturity, the market yield was 8%. Interest is paid semiannually on June 30 and December 31.
Lynch Enterprise purchased the bonds as an investment and plans to hold the bonds for
approximately 2 years.
The fair value of the bonds at 12/31/22 was $985,000.
Lynch's fiscal year end is December 31 and 2022 was its first year of business.
Required:
1. Prepare the fair value adjusting entry for Lynch Enterprise as of 12/31/22. Show your work.
2. Show or describe exactly and specifically what will appear on the Balance Sheet of Lynch Enterprise as of 12/31/22, related to these bonds.
3. Show or describe exactly and specifically what will appear on the Income Statement of Lynch Enterprise for the year ending 12/31/22.
4. Prepare the journal entries Lynch Enterprise should make on the following dates related to this investment. Assume that the fair value of these bonds is $875,000 at 12/31/23. Show your work.
6/30/23:
12/31/23:
5. Assume Swift sells these bonds on 4/1/24 for $1,025,000. Prepare all journal entries required on 424 Show your work.
Accrue interest as of 4/1/24:
Adjust to fair value as of 4/1/24:
Reclassification entry as of 4/1/24:
Record the sale of the investment on 4/1/24:
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