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In: Accounting

on january 1 2020 Liu corporation paid $250007 to aquire bonds of Singh investment Corp. with...

on january 1 2020 Liu corporation paid $250007 to aquire bonds of Singh investment Corp. with a par value of $254000. The annual contract rate on the bonds is 8%. and interest is paid semiannually on June 30 and Dec. 31. The bonds mature after three years. The market rate of interest was 7.7 %. Liu Corporation intends to hold the bonds untill maturnity.
1. prepare an anortization schedule for the investment showing only 2020
2 prepare Liu's entries to record the purchase of the bonds
3. prepare the Liu's entries to prepare to record the reciept of the first two interest payments.
4. show how the investment will appear on dec. 31, 2020 balance sheet

Solutions

Expert Solution

Face Value = $254,000

Annual Coupon Rate = 8%
Semiannual Coupon Rate = 4%
Semiannual Coupon = 4% * $254,000
Semiannual Coupon = $10160

Annual Interest Rate = 7.7%
Semiannual Interest Rate = 3.85%

1)
Period ending Cash interest received Period interest income Premium amortized Unamortized premium carrying value
01-01-20 3993 250007
30-06-20 10160 9625.2695 534.7305 3458.2695 246548.7
31-12-30 10160 9492.126124 667.8738758 2790.395624 243758.3
2)
Date Particulars Debit ($) Credit ($)
01-01-20 Investment in bonds 250007
     Cash 250007
(To record the purchase of bonds)
3)
date Particulars Debit ($) Credit ($)
30-06-20 Cash 10160
     Interest income 9625
     Investment in bonds 535
(To record receipt of interest )
30-12-20 Cash 10160
     Interest income 9492
     Investment in bonds 668
(To record receipt of interest)
4)
The Carrying value of the investment as on Dec 31, 2020, will be $243758.3

ekkarill92 answered 1 year ago
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