Question

10	On 7/1/14, ABC sold 12% bonds having a maturity value of $800,000 for $861,771, resulting in an effective yield of 10%. The bonds are
	dated 7/1/14, and mature 7/1/19. Interest is payable semiannually on July 1 and January 1. ABC uses the effective interest method of
	amortization for bond premium or discount. Record the adjusting entry for the accrual of interest and the related amortization on 12/31/14.
	Hint: Develop an abbreviated amortization schedule to accurately determine the interest expense.
11	The following information is available for ABC Corporation at 12/31/14 regarding its investments in stocks of other companies.
		Securities					Cost	Fair Value
		2,200 shares of Toyota Corporation Common Stock					$ 100,000	$ 125,000
		1,100 shares of G.M. Corporation Common Stock					$    67,000	$ 34,000
							$ 167,000	$ 159,000
	Prepare the adjusting entry (if any) for 2014, assuming the securities are classified as trading.

Answer 1

Solution 10.

Adjusting entry for the accrual of interest and the related amortization

Year	Particulars	L.F	Debit ($)	Credit ($)
2014
Dec-31	Interest Expense		43,089
	Unamortized Bond Premium		4,911
	Interest Payable			48,000
	(For 6-month interest accrued)

Working:

	A	B	C	D	E
Semiannual Interest Period	Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized premium	Carrying Value at end of period
	800,000*12%*6/12	E*10%*6/12	A-B	D-C	E-C
July 1, 2014				$61,770	$861,771
Jan 1, 2015	$48,000	$43,089	$4,911	$56,859	$856,860
July 1, 2015	$48,000	$42,843	$5,157	$51,702	$851,703
Jan 1, 2016	$48,000	$42,585	$5,415	$46,287	$846,288
4	$48,000	$42,314	$5,686	$40,601	$840,602
5	$48,000	$42,030	$5,970	$34,631	$834,632
6	$48,000	$41,732	$6,268	$28,363	$828,364
7	$48,000	$41,418	$6,582	$21,781	$821,782
8	$48,000	$41,089	$6,911	$14,870	$814,871
9	$48,000	$40,744	$7,256	$7,614	$807,615
10	$48,000	$40,381	$7,614	($1)	$800,000