On January 1, Sharp Company purchased $50,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years and pay interest annually on December 31. Sharp does not intend to trade the bond or to hold them until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Jan. 1 Investment in AFS Securities Cash To record the purchase of investment. Date Dec. 31 b. Prepare the entry for the receipt of interest on December 31. Cash Account Name Account Name Interest Revenue Investment in AFS Securities To record the receipt of interest. Date Dec. 31 Cash # Account Name Fair Value Adjustment-TS To adjust investment to fair value. + # # # Debit ; Debit 52,165 Debit 0 3,000 0 0 c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). 2,450 Credit 0 Credit 0 Credit 52,165 0✔ 2,60B✔ 392✔ 0x 3,165 x
On January 1, Sharp Company purchased $50,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years and pay interest annually on December 31. Sharp does not intend to trade the bond or to hold them until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Jan. 1 Investment in AFS Securities Cash To record the purchase of investment. Date Dec. 31 b. Prepare the entry for the receipt of interest on December 31. Cash Account Name Account Name Interest Revenue Investment in AFS Securities To record the receipt of interest. Date Dec. 31 Cash # Account Name Fair Value Adjustment-TS To adjust investment to fair value. + # # # Debit ; Debit 52,165 Debit 0 3,000 0 0 c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). 2,450 Credit 0 Credit 0 Credit 52,165 0✔ 2,60B✔ 392✔ 0x 3,165 x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, Sharp Company purchased $50,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years and pay interest annually on December 31. Sharp
does not intend to trade the bond or to hold them until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are
quoted at 98.
Note: When answering the following questions, round answers to the nearest whole dollar.
a. Prepare the entry for the purchase of the debt investment on January 1.
Date
Jan. 1 Investment in AFS Securities
Cash
To record the purchase of investment.
Date
Dec. 31
b. Prepare the entry for the receipt of interest on December 31.
Cash
Date
Dec. 31
Account Name
Account Name
Interest Revenue
Investment in AFS Securities
To record the receipt of interest.
Cash
#
Account Name
Fair Value Adjustment-TS
To adjust investment to fair value.
+
#
#
#
Debit
;
Debit
52,165
Debit
0
c. Record the entry to adjust the investment to fair value on December 31, if applicable.
Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero).
3,000
0
0
2,450
Credit
0
Credit
0
Credit
52,165
0✔
2,60B✔
392✔
0x
3,165 x
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