1. Prepare the appropriate journal entries for these long-term bond investments. 2. By how much will Livermore Labs' earnings increase in each of the three years as a result of these investments? (Ignore income taxes.)
1. Prepare the appropriate journal entries for these long-term bond investments. 2. By how much will Livermore Labs' earnings increase in each of the three years as a result of these investments? (Ignore income taxes.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The following transactions relate to bond investments of Livermore Laboratories. The company's fiscal year ends on December 31.
Livermore uses the straight-line method to determine interest.
2024
July 1 Purchased $31 million of Bracecourt Corporation 128 debentures, due in 20 years (June 30, 2044), for $30.7
million. Interest is payable on January 1 and July 1 of each year.
October 1 Purchased $45 million of 14 Framm Pharmaceuticals debentures, due May 31, 2034, for $47,900,000 plus
accrued interest. Interest is payable on June 1 and December 1 of each year.
December 1 Received interest on the Framm bonds.
December 31 Accrued interest.
2025
January 1 Received interest on the Bracecourt bonds.
June 1 Received interest on the Framm bonds.
July 1 Received interest on the Bracecourt bonds.
September 1 Sold $22.5 million of the Framm bonds at 103 plus accrued interest.
December 1 Received interest on the remaining Framm bonds.
December 31 Accrued interest.
2026
January 1 Received interest on the Bracecourt bonds.
February 28 Sold the remainder of the Framm bonds at 104 plus accrued interest.
December 31 Accrued interest.
Required:
1. Prepare the appropriate journal entries for these long-term bond investments.
2. By how much will Livermore Labs' earnings increase in each of the three years as a result of these investments? (Ignore income
taxes.)
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