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Loban Quinta Associates acquired $7,560,000 par value, 8%, 20-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 18%, and interest is paid semiannually on June 30 and December 31. Quinta uses the effective interest rate method to account for this investment. It does not intend to hold the investment until maturity, nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $5,197,100. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Read the requirements Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar) The purchase price of the investment in bonds is Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1 Requirement c. Prepare the journal entries to record the interest income for the first year. Begin by recording the interest income for the semiannual payment on June 30. Account June 30

Loban Quinta Associates acquired $7,560,000 par value, 8%, 20-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 18%, and interest is paid semiannually on June 30 and December 31. Quinta uses the effective interest rate method to account for this investment. It does not intend to hold the investment until maturity, nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $5,197,100. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Read the requirements Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar) The purchase price of the investment in bonds is Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1 Requirement c. Prepare the journal entries to record the interest income for the first year. Begin by recording the interest income for the semiannual payment on June 30. Account June 30

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 7MCQ
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Loban Quinta Associates acquired $7,560,000 par value, 8%, 20-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 18%, and interest is paid semiannually on June 30 and December 31. Quinta uses the effective interest rate method to account for this investment. It does not intend to hold the investment until maturity, nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $5,197,100. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Read the requirements Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar) The purchase price of the investment in bonds is Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1 Requirement c. Prepare the journal entries to record the interest income for the first year. Begin by recording the interest income for the semiannual payment on June 30. Account June 30
Transcribed Image Text:Loban Quinta Associates acquired $7,560,000 par value, 8%, 20-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue is 18%, and interest is paid semiannually on June 30 and December 31. Quinta uses the effective interest rate method to account for this investment. It does not intend to hold the investment until maturity, nor will it actively trade the bonds. The fair value of the bonds at the end of the year of acquisition is $5,197,100. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Read the requirements Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar) The purchase price of the investment in bonds is Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries.) Account January 1 Requirement c. Prepare the journal entries to record the interest income for the first year. Begin by recording the interest income for the semiannual payment on June 30. Account June 30
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