2017 320500 2020 310000 2018 309000 2021 300000 2019 308000 Instructions a

2017 320500 2020 310000 2018 309000 2021 300000 2019

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2017 $320,500 2020 $310,000 2018 $309,000 2021 $300,000 2019 $308,000 Instructions (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest and recognition of fair value for 2017. (c) Prepare the journal entries to record the interest and recognition of fair value for 2018. Solution: (a) Debt Investments (Available for Sale) 322,744 1/1/2017 Cash 322,744 Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method 12% Bonds Sold to Yield 10% Date Cash Received (FV x std rate x time) ($300,000 x 12%/yr x 1 yr) Interest Revenue (NCV x mkt rate x time) (NCV x 10%/yr x 1 yr) Premium Amortized Net Carrying Value (NCV) Amount of Bonds 1/1/13 $322,744.44 12/31/13 $36,000 $32,274.44 $3,725.56 319,018.88 12/31/14 36,000 31,901.89 4,098.11 314,920.77 12/31/15 36,000 31,492.08 4,507.92 310,412.85 12/31/16 36,000 31,041.29 4,958.71 305,454.14 12/31/17 36,000 30,545.86 * * 5,454.14 300,000.00 *$0.45 rounding error (b) Interest Receivable (FV x std rate x time = $300,000 X 12%/12 months x 12 months) 36,000 12/31/2017 Debt Investments (Available for Sale) 3,726 Interest Revenue (NCV x mkt rate x time = $74,086 X 11%/12 mo x 12 months) 32,274 12/31/2017 Fair Value Adjustment – AFS Debt Investment 1,482 Unrealized Holding Gain / Loss - Equity 1,482 At 12/31/2017 G/L $319,018 (debit balance) Add: FV adj 1,482 (debit balance) FV on B/S $320,500 (debit balance) Fair Value Adjustment Accum OCI –Unrealized Holding G/L in Equity BB 0 0 BB (2017 AJE) 1,482 1,482 (2017 CJE) (12/31 EB) 1,482 1,482 (12/31 EB)
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ACCO 4020 Kren 9 Exercise 17-4 continued: (d) Interest Receivable (FV x std rate x time = $300,000 X 12%/12 months x 12 months) 36,000 12/31/2018 Debt Investments (Held to Maturity) 4,098 Interest Revenue (NCV x mkt rate x time = $74,086 X 11%/12 mo x 12 months) 31,902 12/31/2018 Unrealized Holding Gain / Loss – Equity 7,402 Fair Value Adjustment – AFS Debt Investment 7,402 At 12/31/2017 At 12/31/2018 G/L $319,018 (debit balance) G/L $314,920 (debit balance) Add: FV adj 1,482 (debit balance) Less: FV adj (5,920) (credit balance) FV on B/S $320,500 (debit balance) FV on B/S $309,000 (debit balance) Fair Value Adjustment Accum OCI –Unrealized Holding G/L in Equity BB 1,482 1,482 BB 7,402 (2018 AJE) (2018 CJE) 7,402 5,920 (EB 12/31/2018) (EB 12/31/2018) 5,920 Since the bond is an available for sale investment, it is reported at fair value on the balance sheet. (Both the Debt Investment and the Fair Value adjustment account are permanent accounts.) The Unrealized Holding Gain or Loss – Equity account is reported in Other Comprehensive Income. (It is not reported on the income statement.) This account is a temporary account that is closed in the closing entries to the Accumulated Other Comprehensive Income – Unrealized Holding G/L account which is a permanent account in equity on the balance sheet. (~Since the unrealized gain or loss does not appear on the income statement it is not closed to Retained Earnings.) Interest Revenue is reported on the income statement. It is a temporary account closed to Retained Earnings.
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ACCO 4020 Kren 10 Exercise 17-8 Facts : Satchel Corporation purchases equity securities costing $73,000. At December 31, the fair value of the portfolio is $65,000. Instructions Prepare the adjusting entry to report the securities properly, assuming that the investment purchased represent less than a 5% interest in the other companies. Indicate the statement presentation of the accounts in your entry.
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