Hurst, Inc. sold its 8% bonds with a maturity value of $9,000,000 on August 1, 2019 for $8,838,000. At the time of the sale the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2021. On October 1, 2021, Hurst decides to reacquire $1,500,000 of its 8% bonds at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds' existing call feature.

Hurst, Inc. sold its 8% bonds with a maturity value of $9,000,000 on August 1, 2019 for $8,838,000. At the time of the sale the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2021. On October 1, 2021, Hurst decides to reacquire $1,500,000 of its 8% bonds at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds' existing call feature.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 8RE

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On January 1, 2020, Lizzo Construction sold $750,000 of 6% bonds to Swift Enterprise. The bonds mature on December 31, 2024 (4 years). For bonds of similar risk and maturity, the market yield was 8%. Interest is paid semiannually on June 30 and December 31. Swift Enterprise purchased the bonds as an investment and plans to hold the bonds for approximately 2 years. The fair value of the bonds at 12/31/20 was $850,000. Swift's fiscal year end is December 31 and 2020 was its first year of business. Required: 1. Prepare the fair value adjusting entry for Swift Enterprise as of 12/31/20. Show your work. | 2. Show or describe exactly and specifically what will appear on the Balance Sheet of Swift Enterprise as of 12/31/20, related to these bonds. 3. Show or describe exactly and specifically what will appear on the Income Statement of Swift Enterprise for the year ending 12/31/20.
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