On August 1, 2020, Peppa Inc. acquired $120,000 (face value) 10% bonds of George Corporation at 102 plus accrued interest. The bonds were dated May 1, 2020, and mature on April 30, 2023, with interest payable each October 31 and April 30. The bonds will be held to maturity. Assuming the amortized cost model is used, the entry to record the purchase of the bonds on August 1, 2020 is     Select one: a.Bond Investment at Amortized Cost                     125,400        Cash                                                                                              125,400 b.Bond Investment at Amortized Cost                    122,400Interest Income                                                                             3,000       Cash                                                                                        125,400 c.Bond Investment at Amortized Cost                     125,400Interest Income                                                                              3,000       Cash                                                                                         122,400 d.Bond Investment at Amortized Cost                     120,000Premium on Bonds                                                        5,400        Cash                                                                                         125,400

Wilbury Corporation issued 1 million of 13.5% bonds for 985,071.68. The bonds are dated and issued October 1, 2019, are due September 30, 2020, and pay interest semiannually on March 31 and September 30. Assume an effective yield rate of 14%. Required: 1. Prepare a bond interest expense and discount amortization schedule using the straight-line method. 2. Prepare a bond interest expense and discount amortization schedule using the effective interest method. 3. Prepare adjusting entries for the end of the fiscal year December 31, 2019, using the: a. straight-line method of amortization b. effective interest method of amortization 4. If income before interest and income taxes of 30% in 2020 is 500,000, compute net income under each alternative. 5. Assume the company retired the bonds on June 30, 2020, at 98 plus accrued interest. Prepare the journal entries to record the bond retirement using the: a. straight line method of amortization b. effective interest method of amortization 6. Compute the companys times interest earned (pretax operating income divided by interest expense) for 2020 under each alternative.

Held-to-Maturity Securities and Amortization of a Discount On January 1, 2019, Kelly Corporation acquired bonds with a face value of 500,000 for 483,841.79, a price that yields a 10% effective annual interest rate. The bonds carry a 9% stated rate of interest, pay interest semiannually on June 30 and December 31, are due December 31, 2022, and are being held to maturity Required: Prepare journal entries to record the purchase of the bonds and the first two interest receipts using the: 1. straight-line method of amortization 2. effective interest method of amortization

On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?

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.

Mercer Corporation acquired $400,000 of Park Company’s bonds on June 30, 2018, for $409,991.12. The bonds carry a 12% stated interest rate and pay interest semiannually on June 30 and December 31. The appropriate market interest rate is 11%, and the bonds are due June 30, 2021. Required: 1. Prepare an investment interest income and premium amortization schedule, using the: a. straight-line method b. effective interest method 2. Prepare journal entries to record the December 31, 2018, and December 31, 2020, interest receipts using both methods.

On August 1, 2025, Ivanhoe Company acquired 1220, $1000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2025, and mature on April 30, 2030, with interest paid each October 31 and April 30. The bonds will be added to Ivanhoe's available- for-sale portfolio. The entry to record the purchase of the bonds on August 1, 2025 is Debt Investments Interest Receivable Cash Debt Investments Cash 1183400 27450 Debt Investments Interest Revenue Cash 1210850 Debt Investments Interest Revenue Discount on Debt Investments Cash 1220000 27450 1183400 27450 1210850 1210850 36600 1210850 1210850

On August 1, 2018, Dambro Company acquired 1,200, $1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2024, with interest paid each October 31 and April 30. The bonds will be added to Dambro’s available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2018 is       a. Debt Investments                      1,191,000             Cash                                                         1,191,000 b. Debt Investments                     1,164,000         Interest Receivable                    27,000              Cash                                                         1,191,000 c. Debt Investments                      1,164,000    Interest Revenue                            27,000             Cash                                                           1,191,000 d. Debt Investments            1,200,000     Interest Revenue                  27,000          Discount on Debt Investments…

On July 1, 2020, West Company purchased for cash, three $10,000 bonds of North Corporation to yield 10%. The bonds pay 9% interest, payable on a semiannual basis each July 1 and January 1, and mature on July 1, 2023. The bonds are classified as AFS securities. The annual reporting period ends December 31. Assume the effective interest method of amortization of any discount or premium.   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 adjust the investment to fair value. The fair value of the bonds at December 31, 2020, was $32,400. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: Round each amount to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. d. Indicate the effects of this investment on the 2020 income statement and year-end balance sheet.   Note: List accounts in…

On January 1, 2020, the Widner Company acquired 12% bonds with a face value of $350,000 and classified them as held-to-maturity. The bonds pay interest on June 30 and December 31, and mature on December 31, 2029. Required: a. Assume the bonds were acquired for $312,921 to yield 14%. Prepare an investment discount amortization schedule for the first year of the investment, using the effective interest method. Assume a 360-day year. Round all calculations to the nearest dollar. Investment Carrying Value of Interest in Debt Investment Cash Income Securities in Debt Date (Debit) (Credit) (Debit) Securities 01/01/20 06/30/20 12/31/20 b. Assume the bonds were acquired for $393,618 to yield 10%. Prepare an investment premium amortization schedule for the first year of the investment using the effective interest method. Assume a 360-day year. Round all calculations to the nearest dollar. Investment Carrying Value of Interest in Debt Investment Cash Income Securities in Debt Date (Debit)…