w4 homework_answers

w4 homework_answers - Chapter 12 Homework Exercise 12-1...

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Chapter 12 Homework Exercise 12-1 Requirement 1 ($ in millions) Investment in bonds (face amount). ..................... 240 Discount on bond investment (difference). ............ 40 Cash (price of bonds). ..................................... ....... 200 Requirement 2 Cash (3% x $240 million). ....................................... 7.2 Discount on bond investment (difference). ................. 8 Interest revenue (4% x $200). ................................ 8.0 Requirement 3 Tanner-UNF reports its investment in the December 31, 2009, balance sheet at its amortized cost – that is, its book value: Investment in bonds. ........................................... $240.0 Less: Discount on bond investment ($40 - .8 million) 39 .2 Amortized cost. ............................................... $200.8 If sale before maturity isn’t an alternative, increases and decreases in the market value between the time a debt security is acquired and the day it matures to a prearranged maturity value are relatively unimportant. For this reason, if an investor has the “positive intent and ability” to hold the securities to maturity, investments in debt securities are classified as “held- to-maturity” and reported at amortized cost rather than fair value in the balance sheet.
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w4 homework_answers - Chapter 12 Homework Exercise 12-1...

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