Problem 1
On January 1, 2013, Phantom Company acquires $341,400 of Spiderman Products, Inc., 8% bonds at a price of $324,420. The interest is payable each December 31, and the bonds mature December 31, 2015. The investment will provide Phantom Company a 10.00% yield. The bonds are classified as held-to-maturity.
(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.
(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective interest method.
(c) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the straight-line method.
(d) Prepare the journal entry for the interest receipt of December 31, 2014, and the discount amortization under the effectiveinterest method.
Problem 2
Parnevik Company has the following securities in its investment portfolio on December 31, 2014 (all securities were purchased in 2014): (1) 3,110 shares of Anderson Co. common stock which cost $59,090, (2) 10,040 shares of Munter Ltd. common stock which cost $572,280, and (3) 6,460 shares of King Company preferred stock which cost $264,860. The Fair Value Adjustment account shows a credit of $10,880 at the end of 2014.
In 2015, Parnevik completed the following securities transactions.
1. On January 15, sold 3,110 shares of Anderson's common stock at $23 per share less fees of $2,380.
2. On April 17, purchased 1,080 shares of Castle's common stock at $34 per share plus fees of $1,800.
On December 31, 2015, the market prices per share of these securities were Munter $63, King $40, and Castle $22. In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik will not actively trade these securities because the top management intends to hold them for more than one year.
(a) Prepare the entry for the security sale on January 15, 2015.
(b) Prepare the journal entry to record the security purchase on April 17, 2015.
(c) Compute the unrealized gains or losses. Prepare the adjusting entry for Parnevik on December 31, 2015.