Question

Post adjusting Journal Entries

9 On 12/31/14, ABC issued 5,000 shares of $3 par value common stock at the closing market price of $7 per share. Prepare ABC's journal entry to reflect the issuance of the stock on 12/31/14.

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.

12 On 1/1/14, ABC Corporation purchased, as a held-to-maturity investment, $200,000 of the 8%, 5-year bonds of Intuit Corporation for $177,824, which provides an 11% return. Prepare ABC's 12/31/14 journal entry to reflect the receipt of annual interest and discount amortization. Assume the bond investment pays interest annually on 12/31 each year and that effective interest amortization is used. Note: Notice that a discount account is not used for this investment. Therefore, for purposes of this adjusting entry, amortize the discount directly to the investment account.

Answer 1

Sl No.	Date	General Journal	Debit	Credit
9	12/31/2014	Cash (5000 Shares x $7)	$    35,000.00
		Common stock (5,000 shares x $3)		$    15,000.00
		Paid in capital in excess of par (Bal Fig)		$    20,000.00
		(To record the issuance of common stock in excess of par value)
10		Semiannually Interest Paid in Cash = $800,000 * 12% / 2 = $48,000
		Effective Interest rate = 10% / 2 = 5%
		Present value of Bond on 7/1/14 = $861,771
		Effective Interest Expense = $861,771 * 5% = $43,088.5
		Amortization of Premium = $48,000 - $43,088.5 = $4,911.5
	Journal Entry :
	Date	Accounts	Debit	Credit
	07-01-14	Cash	$ 861,771.00
		Bonds Payable		$ 800,000.00
		Premium on Bonds Payable		$    61,771.00
	12/31/2014	Bonds Interest Expense	$    43,088.50
		Premium on Bonds Payable	$     4,911.50
		Cash		$    48,000.00
11	12/31/2014	Unrealized Holding Gain and Loss - Loss (167,000-159,000)	$     8,000.00
		Securities Fair Value Adjustment - Trading		$     8,000.00
		(To record the Adjusting entry, assuming Securities are Classified as Trading)
12	01-01-14	Investment in Bonds of Intuit Corp	$ 200,000.00
		Cash $		$ 177,824.00
		Investment in bonds of Intuit Corp (Discount on Bonds)		$    22,176.00
		(The bonds will be reported on balance sheet at $ 177824 ($200000 face value minus $22176 discount on bonds)
	12/31/2014	Interest receivable	$    16,000.00
		Investment in bonds of Intuit Corp (Discount on Bonds)	$     3,560.64
		Interest inome		$    19,560.64
		(For the year ended 31 Dec 2014, the interest income on the bonds would be equal to the product of the bond's carrying amount and effective rate of interest and it equated $ 19560.64 ($177824 multiplied by 11%). Interest receivable for the period amounts to $16000 (the contractual coupon rate of 8% applied to face value of bonds of $200000). The difference between interest income and interest receivable is amortization of discount.