Carsen Company purchased $200,000 of 10% bonds of Garrison Co. on January 1, 2012, paying $211,950. The bonds mature January 1, 2022; interest is payable each July 1 and January 1. The discount of $11,950 provides an effective yield of 9%. Carsen's objective is to hold the bonds to collect the contractual cash flows. Carsen Company uses the effective interest method. On July 1, 2012, Carsen Company should decrease its Held-for-collection Debt Investments account for the Garrison Co. bonds by: 1. $462. 2. $808. 3. $924. 4. $1,598.

Carsen Company purchased $200,000 of 10% bonds of Garrison Co. on January 1, 2012, paying $211,950. The bonds mature January 1, 2022; interest is payable each July 1 and January 1. The discount of $11,950 provides an effective yield of 9%. Carsen's objective is to hold the bonds to collect the contractual cash flows. Carsen Company uses the effective interest method. On July 1, 2012, Carsen Company should decrease its Held-for-collection Debt Investments account for the Garrison Co. bonds by: 1. $462. 2. $808. 3. $924. 4. $1,598.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Cotton Candy Company purchased $1,500,000 of 10% bonds of Caramel Company on January 1, 2024, paying $1,410,375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. For the year ended December 31, 2024, Cotton Candy Companys income statement will report interest revenue from the Caramel Company bonds of
On January 1, 2021, Rupar Retailers purchased $130,000 of Anand Company bonds at a discount of $9,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of: Multiple Choice $4,235. $4,247. $4,550. $3,900.
Barnett Industries, Inc., issued $600,000 of 8% bonds on January 1, 2019. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is December 31, 2028. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 9%. Barnett incurred legal and investment banking fees of $22,000 in issuing the bonds and amortizes these costs annually on a straight-line basis. Required: 1. Calculate the selling price of the bonds. 2. Prepare journal entries for the issuance of the bonds and debt issuance costs.
On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. d. Record the receipt of interest on January 1, 2021. e. Record the sale of all of the bonds on January 2, 2021, for $99,600. f. Record the adjustment to the Fair Value Adjustment account on December 31, 2021, assuming no additional TS investments. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar.
On January 1, 2019, Rodgers Company purchased $200,000 face value, 10%, 3-year bonds for $190,165.35, a price that yields a 12% 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.
On January 1, 2020, Splish Company purchased $300,000, 6% bonds of Cabana Co. for $313,128. The bonds were purchased to yield 5% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Splish Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Splish Company sold the bonds for $305,400 after receiving interest to meet its liquidity needs. (a) Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2020
On July 1, 2020, West Company purchased for cash, ten $10,000 bonds of North Corporation at a market rate of 6%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. b. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c. Record the adjusting entries by West Company on December 31, 2020 to accrue interest revenue and record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $99,600. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar.
On January 1, 2025, Oriole Company purchased $230,000, 6% bonds of Winds Co. for $240,065. The bonds were purchased to yield 5% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2030. Oriole Company uses the effective-interest method to amortize discount or premium. On January 1, 2027, Oriole Company sold the bonds for $234,565 after receiving interest to meet its liquidity needs. (a) Your answer has been saved. See score details after the due date. Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically Indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List debit entry before credit entry)
On January 1, 2020, Pronghorn Company acquires $270,000 of Spiderman Products, Inc., 9% bonds at a price of $244,500. Interest is received on January 1 of each year, and the bonds mature on January 1, 2023. The investment will provide Pronghorn Company a 13% yield. The bonds are classified as held-to-maturity. (c) Prepare the journal entry for the interest revenue and discount amortization under the straight-line method at December 31, 2021. (d) Prepare the journal entry for the interest revenue and discount amortization under the effective-interest method at December 31, 2021. (Round answers to 0 decimal places, e.g. 2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No. Account Titles and Explanation Debit Credit (c) (d)
On January 1, 2017, Natifah Inc. acquires $500,000 of 8% bonds at a price of $552,970. The interest is payable each December 31, and the bonds mature December 31, 2037. The investment will provide Natifah Inc. a 7% yield. The bonds are classified as held-to-maturity. (2a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method. Date Cash Received Interest Revenue Amortization Carrying Amount (2b) Prepare the journal entry for the interest receipt of December 31, 2018, and the discount amortization under the effective interest method.
On July 1, 2020, West Company purchased for cash, three $10,000 bonds of North Corporation at a market rate of 4%. The bonds pay 5% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as trading securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discounts or premiums. Ignore income taxes. b. Record the entry for the purchase of the bonds by West Company on July 1, 2020. c. Record the adjusting entries by West Company on December 31, 2020 to accrue interest revenue and record the unrealized gain or loss. The fair value of the bonds on December 31, 2020, was $33,200. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).
Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2019. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were issued to yield 12%, and are due January 1, 2022. Required: 1. Prepare an investment interest income and discount amortization schedule using the: a. straight-line method b. effective interest method 2. Prepare the July 1, 2021, journal entries to record the interest income under both methods.

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