Problem III: (40 points) Carrol Inc., a calendar year-end company, has the following information available with respect to an investment it classifies as an available-for-sale security.

On November 1, 2018 (11/1/18), Carrol Inc. purchased 15-year bonds with a total face value of $200,000 and a face interest rate of 5% compounded semi-annually. The bonds were purchased for $180,400 to yield an effective rate of 6% compounded semi-annually. Interest is received semi-annually on November 1st and May 1st beginning May 1, 2019.

On 12/31/18, Carrol accrues interest revenue on these bonds using the effective-interest method.

On 12/31/18, the bonds are worth $184,000. There have been no previous fair market adjustments for AFS securities.

On 5/1/19, the company receives their first interest payment from the available-for-sale security.

Face Rate < Market Rate = DISCOUNT!

Part I: (0 points)

Just for fun practice, confirm that the rounded issue price of this bond investment is equal to the amount of $180,400 given above.

Space to show your work (calculator variables):

Issue Price:

n =

I =

PMT =

FV =

PV =

Part II: (4 points)

Using the effective-interest method, complete a partial amortization schedule for this bond investment by filling in the unshaded and empty blocks in the amortization schedule below.

Date	Cash Received	Interest Revenue (3%)	Amortization of Discount	CV
11/1/18
5/1/19
11/1/19

(Continued on next page)

Part III: (36 points)

In the journal below, prepare Carrols journal entries for the dates noted assuming the bonds are classified as available-for-sale securities. The 11/1/18 entry is already shown, and a check figure is provided at the bottom of this problem. Complete the 12/31/18 entries in the same order they are given on the prior page. Round all calculations to the nearest whole dollar, and round interest calculations to the nearest whole month. (34 points)

After each journal entry, update the select T-accounts at the bottom of this page. (2 points)

Please note: Although closing entries would be done in real life, do not show them as part of this exercise.

		Debit	Credit
11/1/18	Investment in AFS	180,400
	Cash		180,400
12/31/18
12/31/18
5/1/19

Investment in AFS			Allowance for Change in Fair Value (ACFV)

Check figure: If your entries are correct, the net carrying value of the security on the companys balance sheet immediately after your 5/1/19 entry should be $184,275.