9.05 Part 1
Beckwith Boots invested $100,000 in 5-year bonds issued by
Ace Brick Company. The bonds were
purchased at par on January 1, 20X1, and bear interest at a rate of 8% per
annum, payable semiannually.
(a) Prepare
the journal entry to record the initial investment on January, 20X1.
(b) Prepare
the journal entry that Beckwith would record on each interest date.
(c) Prepare
the journal entry that Beckwith would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this investment, and how does
the difference compare to total interest income that was recognized?
9.06 Devol Computing invested in $100,000 of face amount of
6-year bonds issued by Horton Micro Chip Company on January 1, 20X1. The bonds were purchased at 103, and bear
interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare
the journal entry to record the initial investment on January, 20X1.
(b) Prepare
the journal entry that Devol would record on each interest date.
(c) Prepare
the journal entry that Devol would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this investment, and how does
the difference compare to total interest income that was recognized?
9.05 Part 2
Beckwith Boots invested $100,000 in 5-year bonds issued by
Ace Brick Company. The bonds were purchased at 103, and bear interest at a
stated rate of 8% per annum, payable semiannually.
(a) Prepare
the journal entry to record the initial investment on January, 20X1.
(b) Prepare
the journal entry that Beckwith would record on each interest date.
(c) Prepare
the journal entry that Beckwith would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this investment, and how does
the difference compare to total interest income that was recognized?
Part 3
Beckwith Boots invested $100,000 in 5-year bonds issued by
Ace Brick Company. The bonds were purchased at 98, and bear interest at a
stated rate of 8% per annum, payable semiannually.
(a) Prepare
the journal entry to record the initial investment on January, 20X1.
(b) Prepare
the journal entry that Beckwith would record on each interest date.
(c) Prepare
the journal entry that Beckwith would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this investment, and how does
the difference compare to total interest income that was recognized?
9.08 Davis Steel
Company acquired 30% of the stock of Reginald Metals Company. Davis acquired this investment for purposes
of being able to exert significant influence over the strategic plans and
operations of Reginald. Following are
events pertaining to this investment:
June 1 Purchased
30,000 shares of Reginald for $28 per share.
June 30 The
fair value of Reginald’s stock was $31 per share, and the company reported June
income of $80,000.
July 15 The
fair value of Reginald’s stock was $30 per share, and the company declared and
paid a dividend of $0.50 per share.
July 31 The
fair value of Reginald’s stock was $29 per share, and the company reported July
income of $60,000.
(a) What
method should be used to account for this investment?
(b) Prepare
journal entries to account for the activity pertaining to the investment in
Reginald Metals.
(c) If the
investment in Reginald Metals was insufficient to allow Davis to exert
significant influence, how would the accounting approach differ?
13.06 Part 1
Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at par on January 1,
20X1, and bear interest at a rate of 8% per annum, payable semiannually.
(a) Prepare
the journal entry to record the bond issue on January, 20X1.
(b) Prepare
the journal entry that Ace would record on each interest date.
(c) Prepare
the journal entry that Ace would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this bond issued, and how
does the difference compare to total interest expense that was recognized?
Part 2
Ace Brick company issued $100,000 of 5-year bonds. The bonds were issed at 103, and bear
interest at a stated rate of 8% per annum, payable semiannually. The premium is amortized by the straight-line
method.
(a) Prepare
the journal entry to record the initial issue on January, 20X1.
(b) Prepare
the journal entry that Horton would record on each interest date.
(c) Prepare
the journal entry that Horton would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this bond issue, and how does
the difference compare to total interest expense that was recognized?
Part 2
Ace Brick company issued $100,000 of 5-year bonds. The bonds
were issued at 98, and bear interest at a stated rate of 8% per annum, payable
semiannually. The discount is amortized
by the straight-line method.
(a) Prepare
the journal entry to record the initial issue on January, 20X1.
(b) Prepare
the journal entry that Horton would record on each interest date.
(c) Prepare
the journal entry that Horton would record at maturity of the bonds.
(d) How much
cash flowed “in” and “out” on this bond issue, and how does
the difference compare to total interest expense that was recognized?
13.9 Standard
Atlantic Shipping issued $5,000,000, face amount, of 7% bonds on January 1,
20X3. The bonds are 5-year bonds, and
Interest is payable every 6 months. At
the time of issue, the market rate of interest was only 6%, so the bonds were
issued at a premium.
(a) Prepare
calculations showing that issue price was approximately $5,213,235.
(b) Use the
effective-interest method of amortization, and prepare the journal entries that
Standard Atlantic Shipping would record on January 1, 20X3, June 30, 20X3, and
December 31, 20X3.
(c) Show how
the bonds would appear on Standard Atlantic Shipping’s December 31, 20X3
balance sheet.
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