On January 1, 2016, Daniels Company purchased $100,000 of 8 percent, five-year bonds of Merrick Company for $92,278. The bonds were selling for $94,800 on July 1, 2016 and had an amortized cost of $92,892. The bonds were selling for $95,655 as of December 31, 2016 and had an amortized cost of $93,537 on that date. The bonds pay interest semi-annually on January 1 and July 1, and they mature on January 1 ,2021.
Required:
1. Assume that Daniels intends to sell the bond in August of 2016.
1a. How would they classify this investment?( Trading, Available-for-Sale, Held-to-Maturity)
1b. Based on your answer to question 1, at what amount would they report the bonds on their books at July 1, 2016?
1c. Based on your answer to question 1, prepare the journal entry to report the fair value adjustment of the security on July 1, 2016.
2. Assume that Daniels does not plan to sell these securities in the short-term, nor do they intend to hold the bonds until January 1, 2021.
2a. How would they classify these bonds? (Trading, Available-for-Sale, Held-to-Maturity).
2b. Based on your answer to question 2, at what amount would the bonds be reported on the balance sheet at December 31, 2016?
2c. Based on your answer to question 2, prepare the journal entry to report the fair value adjustment of the security on December 31, 2016, if applicable.
3. Ignoring your answers to questions 1 and 2 assume, assume, instead, that Daniels DOES intend to hold the bonds until January 1, 2021
3a. How would Daniels classify the bonds? (Trading, Available-for-Sale, Held-to-Maturity).
3b. Based on your answer to question 3, at what amount would the bonds be reported on the balance sheet at December 31, 2016?
3c. Based on your answer to question 3, prepare the journal entry to report the fair value adjustment of the security on December 31, 2016, if applicable.
Please show all calculations, preferbly in excel format.