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Record all journal entries for the first year (3/1/x1 - 12/31/x1) on the books of the investor under the assumption that the investor plans to
- Record all journal entries for the first year (3/1/x1 - 12/31/x1) on the books of the investor under the assumption that the investor plans to hold the investment until maturity (i.e., reports the investment at amortized cost). Hint: Do not use a premium or discount account. Amortize discounts and premiums as a direct adjustment to the Investment in Bonds account. 2Describe what the investor will report (give category and dollar amounts) in the balance sheet and income statement at 12/31/x1.
Cash Flow | Amount | PV Factor | Present Value | ||
Maturity Value | $10,000 | 0.55368 | $5,537 | ||
Interest Payment | $350 | 14.87747 | $5,207 | ||
Issue Price | $10,744 | ||||
Item | Amount | ||||
Total Int paid over the 10 year period | 7,000 | ||||
Premium on the Bond | 744 | ||||
Total Int Exp over the 10 year period | 6,256 | ||||
Six Month Period | BEG Loan Bal | Appropriate Int rate | Interest Expense | Interest Paid | Premium Amort |
1 | 10,744 | 3% | 322 | 350 | 28 |
2 | 10,716 | 3% | 321 | 350 | 29 |
Column Total | 6,256 | 7,000 | 744 |
Payment at 9/1/X1 | ||
Interest Exp | 322 | |
Premium on Bonds Payable | 28 | |
Cash | 350 | |
Adjusting Entry at 12/31/X1 | ||
Interest expense | 214 | |
Premium on Bonds Payable | 19 | |
interest payable | 233 | |
Liability balance at 12/31/x1 | ||
Bonds payable | 10,000 | |
premium: BEG balance | 744 | |
Amortization | 28 | |
19 | 697 | |
Total | 9,303 | |
For interest payable | 233 | |
income statement - 20x1 | ||
first 6 months | $322 | |
last 4 months | $214 | |
total | $536 |
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