On January 1, 2020, Ayayai Company acquires $300,000 of Spiderman Products, Inc., 9% bonds at a price of $271,666. Interest isreceived on January 1 of each year, and the bonds mature on January 1, 2023. The investment will provide Ayayai Company a 13%yield. The bonds are classified as held-to-maturity.Show Transcribed Text(c)Prepare the journal entry for the interest revenue and discount amortization under the straight-line method atDecember 31, 2021.(d)Prepare the journal entry for the interest revenue and discount amortization under the effective-interest method atDecember 31, 2021.(Round answers to O decimal places, eg. 2,500. Credit account titles are automatically indented when amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)No. Account Titles and Explanation(c)(d)Interest RevenueInterest RevenueDebit27,00027,000Credit

BondsThe financial or legal instrument that represents a loan taken by a person is called a bond.…

On January 1, 2020, Ayayai Company acquires $300,000 of Spiderman Products, Inc., 9% bonds at a price of $271,666. Interest is received on January 1 of each year, and the bonds mature on January 1, 2023. The investment will provide Ayayai Company a 13% yield. The bonds are classified as held-to-maturity. Show Transcribed Text (c) (d) Prepare the journal entry for the interest revenue and discount amortization under the straight-line method at December 31, 2021. 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, eg. 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 O for the amounts.) No. Account Titles and Explanation (c) (d) Interest Revenue Interest Revenue Debit 27,000 27,000 Credit

On January 1, 2020, Ayayai Company acquires $300,000 of Spiderman Products, Inc., 9% bonds at a price of $271,666. Interest is received on January 1 of each year, and the bonds mature on January 1, 2023. The investment will provide Ayayai Company a 13% yield. The bonds are classified as held-to-maturity. Show Transcribed Text (c) (d) Prepare the journal entry for the interest revenue and discount amortization under the straight-line method at December 31, 2021. 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, eg. 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 O for the amounts.) No. Account Titles and Explanation (c) (d) Interest Revenue Interest Revenue Debit 27,000 27,000 Credit

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1MC

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Refer to the information in RE13-5. Assume that on December 31, 2019, the investment in Smith Corporation bonds has a market value of 12,500. Prepare the year-end journal entry to record the unrealized gain or loss.
Refer to the information in RE13-5. Assume that on June 30, Aggie received interest on the Smith Corporation bonds. Prepare the June 30 journal entries to record the receipt of the interest. On April 30, 2019, Aggie Corporation purchased Smith Corporation 10%, 5-years bonds with a face value of 12,000 at par plus four months of accrued interest. Prepare the April 30 journal entry to record the purchase of these available-for-sale securities.
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?
Bats Corporation issued 800,000 of 12% face value bonds for 851,705.70. The bonds were dated and issued on April 1, 2019, are due March 31, 2023, and pay interest semiannually on September 30 and March 31. Bats sold the bonds to yield 10%. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare any 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. Assume the company retires the bonds on June 30, 2020, at 103 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