Problem 19-5 (AICPA Adapted) On October 1, 2021, Yost Company purchased 4,000 of the P1,000 face amount, 10% bonds of Pell Company for P4,400,000 which included accrued interest of P100,000. The bonds, which mature on January 1, 2028, pay interest semiannually on January 1 and July 1. The entity used the straight line method of amortizatior and appropriately recorded the bonds as financial asset a amortized cost. Required: Prepare journal entries for 2021 and 2022.

Problem 19-5 (AICPA Adapted) On October 1, 2021, Yost Company purchased 4,000 of the P1,000 face amount, 10% bonds of Pell Company for P4,400,000 which included accrued interest of P100,000. The bonds, which mature on January 1, 2028, pay interest semiannually on January 1 and July 1. The entity used the straight line method of amortizatior and appropriately recorded the bonds as financial asset a amortized cost. Required: Prepare journal entries for 2021 and 2022.

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 1RE

See similar textbooks

Similar questions

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.
Refer to the information in RE 13-3. Assume that on December 31, 2019, Wolfpack received interest on the Todd Corporation bonds. Wolfpack uses the straight-line method to amortize premiums and discounts. Prepare the December 31 journal entry to record the receipt of the interest. On July 1, 2019, Wolfpack Corporation purchases securities which it intends to buy and sell frequently. These securities consisted of todd Corporation 10%, 5-year bonds with a face value of 20,000 which were purchased for 18,500. Prepare the july 1 journal entry to record the purchase of these trading 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?
Transfer between Categories On December 31, 2018, Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, 100,000 face value bonds had a carrying value of 107,023.56 and were being amortized using the effective interest method based on a market rate of 7%. Interest on these bonds is paid annually each December 31. On December 31, 2019, after recording the interest earned, Leslie decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105,000. Required: Prepare the journal entries on December 31, 2019, to record the interest earned and the reclassification.
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.
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
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.
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
On July 1, 2019, Aldrich Company purchased as an available-for-sale security 200,000 face value, 9% U.S. Treasury notes for 194,000. The notes mature July 1, 2020, and pay interest semiannually on January 1 and July 1. The notes were sold on December 1, 2019, for 199,000. Aldrich normally uses straight-line amortization on all of its notes. In its income statement for the year ended December 31, 2019, what amount should Aldrich report as a gain on the sale of the available-for-sale security? a. 2,500 b. 3,500 c. 5,000 d. 6,000