QUESTIONS:
1. Investments in bonds are categorized as either trading securities, available for sale securities, or held to maturity securities. Define these two categories.
2. Why can't stock investments be classified as held-to-maturity securities?
3. Bond investments purchased as trading securities or available for sale securities are required to be reported at their fair market value on the balance sheet. Bonds purchased as held to maturity securities are required to be reported at their amortized cost. Why the difference in the reporting requirement?
EXERCISES
1. Levon Company had the following transactions pertaining to its investments in bonds during 2017: June 30 Purchased $70,000, 10%, 10-year bonds for $76,000 cash. The bonds pay interest semi-annually each June 30 and December 31. Dec 31 Received the semi-annual bond interest. On December 31, 2017, the market value of the bond investment is $71,400.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have been purchased as available for sale securities, but with no intent to hold longer than one year.
(c) Indicate the accounts and amounts that would appear on the 2017 financial statements.
(d) If the bonds are sold on January 1, 2018 for $71,600 cash, give the journal entry to record the sale.
(e) If the bonds had been purchased as trading securities, indicate the accounts and amounts that would appear on the 2017 financial statements.
2. Levon Company had the following transactions pertaining to its investments in bonds during 2017:
Jan 1 Purchased $70,000, 10%, 10-year bonds for $76,000 cash. The bonds pay interest semi-annually each June 30 and December 31.
June 30 Received the semi-annual bond interest.
Dec 31 Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $71,400.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have been purchased as held to maturity securities.
(c) Indicate the accounts and amounts that would appear on the 2017 financial statements.
(d) If the bonds are sold on December 31, 2024 for $73,800 cash, give the entry to record the sale.
3. Kerr Company had the following transactions pertaining to its investments in bonds during 2017:
June 30 Purchased $50,000, 10%, 10-year bonds for $46,000 cash. The bonds pay interest semi-annually each June 30 and December 31.
Dec 31 Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $47,500.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have been purchased as available for sale securities, but with no intent to hold longer than one year.
(c) Indicate the accounts and amounts that would appear on the 2017 financial statements.
(d) If the bonds are sold on January 1, 2018 for $47,800 cash, give the journal entry to record the sale.
(e) If the bonds had been purchased as trading securities, indicate the accounts and amounts that would appear on the 2017 financial statements.
4. Kerr Company had the following transactions pertaining to its investments in bonds during 2017:
Jan 1 Purchased $50,000, 10%, 10-year bonds for $46,000 cash. The bonds pay interest semi-annually each June 30 and December 31.
June 30 Received the semi-annual bond interest.
Dec 31 Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $47,500.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have been purchased as held to maturity securities.
(c) Indicate the accounts and amounts that would appear on the 2017 financial statements.
(d) If the bonds are sold on December 31, 2022 for $49,000 cash, give the entry to record the sale.
Attachment:- Assignment.rar