Held-to-Maturity Securities and Amortization of a Discount On January 1, 2019, Kelly Corporation acquired bonds with...
Held-to-Maturity Securities and Amortization of a Discount On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2022, and are being held to maturity.
Required: Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the: 1. straight-line method of amortization 2. effective interest method of amortization
Homework Answers
|
Part 1 ---- Journal Entries to record the purchase of the bonds and the first two interest receipts using Straight Line method of amortization |
| Semi Annual maturity period = 4*2 = 8 |
| Issue Price of the Bonds = $483,841.79 |
| Face Value / Maturity Value of the bonds =$500,000 |
| Discount Received on Issue of the Bonds = $500,000 - $483,841.79 = $16,158.21 |
| Amortization of Discount to be recognized on each payment = 16,158.21 / 8 = $2,019.78 |
| Semi Annual Interest Receivable = Face Value x Stated Rate of Interest = $500,000 x 9% x ½ = $22,500 |
| Date | Account Titles and Explanation | Debit | Credit |
| Jan.1 | Investment in Held to Maturity Debt Securities | $483,841.79 | |
| Cash | $483,841.79 | ||
| June.30 | Interest Receivable | $22,500.00 | |
| Investment in Held to Maturity Debt Securities (Amortization Portion) | $2,019.78 | ||
| Interest Income | $24,519.78 | ||
| Dec.31 | Interest Receivable | $22,500.00 | |
| Investment in Held to Maturity Debt Securities (Amortization Portion) | $2,019.78 | ||
| Interest Income | $24,519.78 |
| Part2 ---- Journal Entries to record the purchase of the bonds and the first two interest receipts using Effective Interest Rate Method |
| Interest Revenue/Income = Carrying Value of the Investment in bonds at the beginning of period x Effective Interest Rate x Semi Annual ½ |
| Interest Revenue on June 30. |
| Book/Carrying Value of Investment = $483,841.79 |
| Interest Income = $483,841.79 x 10% x ½ = $24,192.09 |
| Amortization of Discount = Interest Income – Cash Interest Receivable = $24,192.09 - $22,500 = $1,692.09 |
| Interest Income on Dec.31 |
| Book Value of Bond Investment = $483,841.79 + Amortization of Discount $1,692.09 = $485,533.88 |
| Interest Income = $485,533.88 x 10% x ½ = $24,276.69 |
| Amortization of Discount = Interest Income – Cash Interest Receivable = $24,276.69 - $22,500 = $1,776.69 |
| Date | Account Titles and Explanation | Debit | Credit |
| Jan.1 | Investment in Held to Maturity Debt Securities | $483,841.79 | |
| Cash | $483,841.79 | ||
| June.30 | Interest Receivable | $22,500.00 | |
| Investment in Held to Maturity Debt Securities (Amortization Portion) | $1,692.09 | ||
| Interest Income | $24,192.09 | ||
| Dec.31 | Interest Receivable | $22,500.00 | |
| Investment in Held to Maturity Debt Securities (Amortization Portion) | $1,776.69 | ||
| Interest Income | $24,276.69 |
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Held-to-Maturity Securities and Amortization of a Discount On
January 1, 2019, Kelly Corporation acquired bonds with...
On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $484,163.65,...
On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
2....
On January 1, 2019, Kelly Corporation acquired bonds with a face value of $500,000 for $484,163.65,...
On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
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On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
2....
On January 1, 2019, Kelly Corporation acquired bonds with a face
value of $500,000 for $484,163.65, a price that yields a 11%
effective annual interest rate. The bonds carry a 10% stated rate
of interest, pay interest semiannually on June 30 and December 31,
are due December 31, 2022, and are being held to maturity.
Required:
Prepare journal entries to record the purchase of the bonds and
the first two interest receipts using the:
1.
straight-line method of amortization
2....
problem 14-6. Before maturity, Foster incorporated
sold $500,000 of 12% bonds on january 1, 2019, for $470,143.47 a
price that yields a 14% interest rate. the bonds pay interest
semiannually on June 30 and december 31 and are due December 31,
2022. foster uses the effective interest method.
prepare an interest expense and discount ammortization
schedule.
assume the company reacquired the bonds on July 1, 2021 at 104.
prepare journal entries to record the bond retirement.
40 Chapter 14 Financing...
13-5
2134 Bond 13.2 pany's bon issue on December 31, 2021. the purchase of the bonds, each interest receipt, and the retirement of the LEVEL TOMS Tred to separately record the interest atacuisition in the company stancial statements (no calculations are required) interest at acquisition, explain the errors that would Bond Investment Premium Amorti amortization Schedule Mercer Corporation acquired $400,000 olan pany's bonds on June 30, 2019, for $409 2019. for $409,991.12. The bonds carry a 12% stated interest rate...
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value, 9%, 3-year bonds for $97,462.11, a price that yields a 10%
effective annual interest rate. The bonds pay interest semiannually
on June 30 and December 31.
Required:
1.
Record the purchase of the bonds.
2.
Prepare an investment interest income and discount
amortization schedule using the effective interest method.
3.
Record the receipts of interest on June 30, 2019, and June
30, 2021.
Date Cash Debit Interest Income Credit Investment...
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