m131bch17addtlproblmessolutionsfeb25

Intermediate Accounting

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65.Barr Company purchased bonds with a face amount of $400,000 between interest payment dates. Barr purchased the bonds at 102, paid brokerage costs of $6,000, and paid accrued interest for three months of $10,000. The amount to record as the cost of this long-term investment in bonds is a. $424,000. b. $414,000. c. $408,000. d. $400,000. ($400,000 × 1.02) + $6,000 = $414,000. Oliver Company purchased $400,000 of 10% bonds of McGee Co. on January 1, 2008, paying $376,100. The bonds mature January 1, 2018; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Oliver Company uses the effective-interest method and plans to hold these bonds to maturity. 66. On July 1, 2008, Oliver Company should increase its Held-to-Maturity Debt Securities account for the McGee Co. bonds by a. $2,392. b. $1,371. c. $1,196. d. $686. ($376,100 × .055) – ($400,000 × .05) = $686. 72.On November 1, 2007, Little Company purchased 600 of the $1,000 face value, 9% bonds of Player, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2012, pay interest semiannually on March 1 and September 1. Assuming that Little uses the straight-line method
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