510 Handout 4 Investments - ACCY 510, Financial Reporting...

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ACCY 510, Financial Reporting Standards Department of Accountancy, Fall 2011 In-class Handout #4 Problem 1 Consider the following security issued by Kat Company on the 1 st of January, 2011: Security (a) This security pays interest in cash semi-annually on the 30 th of June and the 31 st of December of each year in the amount of 2.5% of face value for each semi-annual payment. This security also pays the full face value of $1,000 in cash on the 31 st of December, 2016. Assume Peck Inc. purchased security (a) for $960 when it was issued on the 1 st of January, 2011. Peck classified the security as a held-to-maturity investment. Here is the amortization table prepared by Peck at the time of purchase of security (a). Interest Beginning Ending Accrual Asset Payment Interest Interest Amortized Asset Period Balance Date Earned Received Interest Balance 0 $ 960.00 1 $ 960.00 6/30/2011 $ 27.83 $ 25.00 $ 2.83 $ 962.83 2 $ 962.83 12/31/2011 $ 27.92 $ 25.00 $ 2.92 $ 965.75 3 $ 965.75 6/30/2012 $ 28.00 $ 25.00 $ 3.00 $ 968.75 4 $ 968.75 12/31/2012 $ 28.09 $ 25.00 $ 3.09 $ 971.84
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510 Handout 4 Investments - ACCY 510, Financial Reporting...

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