Question

2. The following information relates to the HTM debt securities investments of Kiran Company during 2018:

a. February 1: The company purchased 10% bonds of Tempe Co. having a par value of $150,000 at 102 plus accrued interest. Interest is payable on March 1 and September 1. Maturity date is 12/31/19

b. March 1: Semiannual interest is received and amortization is updated.

c. June 1: 9% bonds of Flagstaff were purchased. The bonds had a par value of $80,000 and were purchased at 96 plus accrued interest. Interest dates are Jan 1 and July 1. Maturity date is 7/1/21.

d. July 1: Semiannual interest is received and amortization updated for the Flagstaff bonds.

e. September 1: Semiannual interest is received and amortization updated for the Tempe bonds.

Required:

Prepare journal entries for all dates. Present journal entries for all items in order (a through e). No explanations or supporting computations are required. Use straight-line amortization. Do NOT use separate accounts for discounts and premiums; instead, net them into the Investments account. When computing amortization, round the monthly amortization amounts to the nearest cent. However, journal entry amounts can be rounded to the nearest dollar.

Answer 1

Answer:

Computation of Amortization per Month:

Particulars	Amount
Tempe Company
Premium on Feb1 ($1,53,000 - $1,50,000)	$       3,000
Dividend By:Number of Months (1st Feb - 2018 to 31st Dec -2019)	$             23
Amortization per Month for Tempe Co.	$          130
Flagstaff Bonds
Discount on 1st June ($80,000 - $76,800)	$       3,200
Dividend By:Number of Months (1st Jun - 2018 to 31st Jul -2021)	$             37
Amortization per Month	$             86

Journal Entries:

Date	Particulars	Debit	Credit
Feb-01	Interest Receivable A/c [Last Interest Paid on 1st Sep](Sep to Jan = 5)($1,50,000 * 10%*5/12)	$       6,250
	Investment in Held till Maturity Bond A/c ($1,50,000*102%)	$ 1,53,000
	To Cash A/c		$ 1,59,250
Mar-01	Cash A/c ($1,50,000 *10%*6/12)	$       7,500
	Investment in Held till Maturity Bond A/c	$          130
	To Interest Receivable A/c		$       6,250
	To Interest Revenue A/c (($1,50,000*10%*1/12)+130)		$       1,380
Jun-01	Interest Receivable A/c [Last Interest Paid on 1st Jan](Jan to May = 5)($80,000 * 9%*5/12)	$       3,000
	Investment in Held till Maturity Bond A/c ($80,000 * 96%)	$    76,800
	To Cash A/c		$    79,800
Jul-01	Cash A/c ($80,000 *9%*6/12)	$       3,600
	To Investment in Held till Maturity Bond A/c		$            86
	To Interest Receivable A/c		$       3,000
	To Interest Revenue A/c (($80,000*9%*1/12)+86)		$          514
Sep-01	Cash A/c ($1,50,000 *10%*6/12)	$       7,500
	Investment in Held till Maturity Bond A/c (130*6)	$          780
	To Interest Revenue A/c		$       8,280

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