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Lecture_XVI_HW_Solutions

Lecture_XVI_HW_Solutions - (though they could if desired...

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Lecture XVI-HW Solutions 11-29 (15-20 min.) 1. Cash interest payment: .10 x \$1,000,000 x 1/2 \$50,000 Semi-annual interest income, 6/30/X2, .12 x \$926,400 x 1/2 55,584 Amortization of discount: \$ 5,584 Analysis of Bond Transactions A = L + SE Investment Cash + in bonds = Retained Earnings a. Purchase 926,400 +926,400 = b. Semi-annual interest, 6/30/X2 + 50,000 + 5,584 = + 55,584 Revenue Interest Increase c. Maturity value +1,000,000 - 1,000,000 =

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11-29 (continued) 2. a. Investment in bonds 926,400 Cash 926,400 To record the acquisition of \$1 million face value 10% bonds maturing on December 31, 20X6, for \$926,400 b. Cash 50,000 Investment in bonds 5,584 Interest revenue 55,584 To record receipt of interest and amortization of discount c. Cash 1,000,000 Investment in bonds 1,000,000 To record collection of bonds at maturity date 3. December 31, 20X1 June 30, 20X2 20X6 31, December due 10% bonds, in Investment Sheets Balance s Investor' 926,400 931,984 * * \$926,400 + \$5,584 = \$ 931,984
While the issuer typically keeps a separate account for unamortized discounts and premiums, the investors do not

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Unformatted text preview: (though they could if desired). 11-36 (10 min.) Company P would use the equity method and claim equity in earnings of Company S equal to 30% x \$200,000 = \$60,000. This would also increase the investment account by \$60,000. When Company P receives 30% of \$50,000 or \$15,000, in dividends, the investment account is reduced by the \$15,000. The net change in the investment account would be an increase of \$60,000 -\$15,000 = \$45,000. 11-39 (15 min.) 1. Trading securities (at market): U.S. Government Bonds \$ 660,000 Held-to-maturity securities (at cost): Bonds issued by Beta Corporation 540,000 Available-for-sale securities (at market): Common shares of Gamma Corporation 770,000 Total short-term investments \$1,970,000 2. Unrealized loss on trading securities 25,000 Trading securities 25,000 Available-for-sale securities 60,000 Unrealized gain on available-for-sale securities 60,000...
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