Question
On January 1, Sharp Company purchased $200,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on
On January 1, Sharp Company purchased $200,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years, and pay interest annually on December 31. Sharp plans to and has the ability to hold the bonds until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1.
| Date | Account Name | Debit | Credit |
|---|---|---|---|
| Jan. 1 | CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACredit | ||
| CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACredit | |||
| To record the purchase of investment. |
b. Prepare the entry for the receipt of interest on December 31.
| Date | Account Name | Debit | Credit |
|---|---|---|---|
| Dec. 31 | CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available | ||
| CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available | |||
| CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available | |||
| To record the receipt of interest. | |||
c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/ADebit" and "N/ACredit" as the account names and leave the Dr. and Cr. answers blank (zero).
| Date | Account Name | Debit | Credit |
|---|---|---|---|
| Dec. 31 | CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available | ||
| CashInterest ReceivableInvestment in TSFair Value AdjustmentTSInvestment in AFS SecuritiesFair Value AdjustmentAFSInvestment in HTM SecuritiesInvestment in StockFair Value AdjustmentEquity SecuritiesFair Value AdjustmentFair Value OptionAllowance for Credit LossesAccumulated Other Comprehensive IncomeUnrealized Gain or LossOCIUnrealized Gain or LossIncomeDividend RevenueInterest RevenueInvestment IncomeLoss on ImpairmentRecovery of Loss on ImpairmentLoss on Sale of InvestmentGain on Sale of InvestmentN/ADebitN/ACreditNo list available | |||
| To adjust investment to fair value. |
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