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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