Question

In: Accounting

On January 20X2, Lucky Company purchased $5,000,000 of Fire Corp. 3% bonds, classified as a FVTPL....

On January 20X2, Lucky Company purchased $5,000,000 of Fire Corp. 3% bonds, classified as a FVTPL. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 4% o the date of purchase. The bonds mature on 30 December 20X11. At the end of 20X2, the bonds had a fair value of $4,800,000.

1. Calculate the price paid by Lucky.

2. Give entries for the first year assuming that the investment is classified as FVTPL.

Solutions

Expert Solution

Solution 1:

Computation of bond price
Table values are based on:
n= 20
i= 2%
Cash flow Table Value Amount Present Value
Par (Maturity) Value 0.67297 $5,000,000.00 $3,364,857
Interest (Annuity) 16.35143 $75,000.00 $1,226,358
Price of bonds $4,591,214

Solution 2:

Journal Entries - Lucky Company
Date Particulars Debit Credit
1-Jan-20X2 Investment in bond Dr $5,000,000.00
       To Cash $4,591,214.00
       To Discount on bond investment $408,786.00
(To record investment in bond)
30-Jun-20X2 Cash Dr $75,000.00
Discount on bond investment Dr $16,824.00
       To Interest Income ($4,591,214*2%) $91,824.00
(To record interest revenue using effective interest)
31-Dec-20X2 Cash Dr $75,000.00
Discount on bond investment Dr $17,161.00
       To Interest Income [($4,591,214+$16,824)*2%] $92,161.00
(To record interest revenue using effective interest)
31-Dec-20X2 Fair value adjustment Dr ($4,800,000 - $4,591,214 - $16,824 - $17,161) $174,801.00
       To Unrealized holding gain or loss - NI $174,801.00
(To adjust bond investment to fair value)

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Lucky Corp. purchased the net assets of Cranky Company on 31 December 2020 for $920,000. Lucky...
Lucky Corp. purchased the net assets of Cranky Company on 31 December 2020 for $920,000. Lucky Corp. reports under IFRS and considers Cranky Company to be a cash-generating unit. The following is the balance sheet for Cranky Company on that date: Assets Liabilities & S/H Equity Accounts Receivable $340,000 Accounts Payable $120,000 Inventory 100,000 Bonds Payable 250,000 Long-Term Investments 120,000 Common Stock 10,000 Plant & Equipment (net) 360,000 Retained Earnings 540,000 $920,000 $920,000 Additional data: a.     The inventory has a fair...
On January 1, 20X2, Miller Corp. purchased a milling machine for $450,000. It will be depreciated...
On January 1, 20X2, Miller Corp. purchased a milling machine for $450,000. It will be depreciated on a straight-line basis over 20 years. On January 1, 20X3, Miller purchased a heavy-duty lathe for $2,320,000, which will be depreciated on a straight-line basis over 40 years. a) Compute Miller's depreciation expence for 20X2, 20X3, and 20X4. 20X2 20X3 20X4 $ $ $ b) Prepare the Fixed Asset portion of the balance sheet (for these two fixed assets) as of the end...
On January 1, 20x2, Platte Company purchased 90 percent of the common stock of River Company....
On January 1, 20x2, Platte Company purchased 90 percent of the common stock of River Company. During 20x2, River sold inventory to Platte for $1,000,000. The cost of the inventory to River was $800,000. By the end of 20x2, 20% of the inventory had not been resold by Platte; that inventory was resold to unrelated parties during 20x3. Both companies use perpetual inventory systems.             The results of operations for the year 20x2 for the two companies are as follows:...
On January 12th, 2018 Jefferson Corporation purchased bonds of Rose Corporation for $73 million and classified...
On January 12th, 2018 Jefferson Corporation purchased bonds of Rose Corporation for $73 million and classified the securities as available-for-sale. On December 31st, 2018 these bonds were valued at $67 million. Eight months later, on October 3rd, 2019 Jefferson Corporation sold these bonds for $87 million. 11. As part of the multi-step approach to record the 2019 transaction, Jefferson Corporation should first update the fair value adjustment on the date of sale by recording: A) An unrealized holding gain of...
On January 1, a company purchased 3%, 20-year corporate bonds for $69,057,808 as an investment. The...
On January 1, a company purchased 3%, 20-year corporate bonds for $69,057,808 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually. Prepare a partial amortization table at the effective interest rate on June 30 and December 31. Prepare the journal entries necessary to record revenue at the effective interest rate on June 30 and December 31. Period-End Cash Interest Received Bond Interest Revenue Discount Amortization Carrying Value...
On January 1, 2017, SDNOB Company issues 16%, $5,000,000 4-year bonds and the bonds pay interest...
On January 1, 2017, SDNOB Company issues 16%, $5,000,000 4-year bonds and the bonds pay interest quarterly on Mar 31, Jun 30, Sep 30, and Dec 31 each year. The prevailing market interest rate at the date of issue is 12%. Use the Effective Interest Rate method of amortization. REQUIRED: 1. Calculate the price of the bonds at the issue date 2. Prepare a partial amortization table only for the first 2½ years using the table given below 3. Prepare...
Problem #3 On January 1, 2017, Pedroni Company Purchased $400,000, 8% bonds of Zorzi Company for...
Problem #3 On January 1, 2017, Pedroni Company Purchased $400,000, 8% bonds of Zorzi Company for $369,114. The bonds were purchased to yield to yield 10% interest. Interest is payable semiannualy on July 1 and January 1. The bonds mature on January 1, 2022. Pedroni Company uses the effective-interest method to amortize discount or premium. On January 1, 2019, Pedroni company sold the bonds for $370,726 after receiving interest to meet its liquidity needs. Instructions: Prepare the journal entry to...
Penn Corporation purchased 80 percent ownership of State Company on January 1, 20X2, at underlying book...
Penn Corporation purchased 80 percent ownership of State Company on January 1, 20X2, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 20 percent of the book value of State. On January 1, 20X4, Penn sold 2,000 shares of State's stock for $65,000 to Nonaffiliated Company and recorded a $12,000 increase in additional paid-in capital. Trial balances for the companies on December 31, 20X4, contain the following data: Penn Corporation State Company...
Penn Corporation purchased 80 percent ownership of State Company on January 1, 20X2, at underlying book...
Penn Corporation purchased 80 percent ownership of State Company on January 1, 20X2, at underlying book value. At that date, the fair value of the noncontrolling interest was equal to 20 percent of the book value of State. On January 1, 20X4, Penn sold 2,000 shares of State's stock for $65,000 to Nonaffiliated Company and recorded a $12,000 increase in additional paid-in capital. Trial balances for the companies on December 31, 20X4, contain the following data: Penn Corporation State Company...
2 Parent Company purchased 100 percent of Son Inc. on January 1, 20X2 for $420,000. Son...
2 Parent Company purchased 100 percent of Son Inc. on January 1, 20X2 for $420,000. Son reported earnings of $82,000 and declared dividends of $4,000 during 20X2. Required: 1. Assuming Parent carries its investment in Son at cost, what is the balance in Parent's Investment in Son account on December 31, 20X2, prior to consolidation? 2. Assuming Parent uses the equity method to account for its investment in Son, what is the balance in Parent's Investment in Son account on...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT