Question

On January 1, 2016, Hillenbrand purchased 12-year, 12% bonds having maturity a value of $781,000. Interest is paid annually on December 31 and the bonds provide the bondholders a 7% yield. Hillenbrand uses the effective-interest method to amortize discount or premium.

At the time of acquisition, the bonds were classified as available-for-sale. The fair value of the bonds on December 31, 2018 is $756,000. The fair value of the bonds as of December 31 of the immediately preceding year (prior measurement date) was $768,000.

Based on the foregoing facts, what is the balance in the Securities Valuation Account for this security as of December 31, 2018? (Note: If the balance is a credit balance, enter a minus sign '-' prior to the amount. If the balance is a debit balance, enter the amount as an absolute number.)

*Please show steps*

Answer 1

1)	Price of the bonds on the date of issue = 781000/1.07^12+93720*(1.07^12-1)/(0.07*1.07^12) =							$1091162
	The amortization schedule will be as under:
	Date	Beginning Carrying Value	Interest Income	Cash Received	Amortization of Premium	Ending Carrying Value
	01-01-2016	1091162	76381	93720	17339	1073823
	12/31/2016	1073823	75168	93720	18552	1055271
	12/31/2017	1055271	73869	93720	19851	1035420
	12/31/2018	1035420	72479	93720	21241	1014179
		1014179	70993	93720	22727	991452
		991452	69402	93720	24318	967133
		967133	67699	93720	26021	941113
		941113	65878	93720	27842	913271
		913271	63929	93720	29791	883480
		883480	61844	93720	31876	851603
		851603	59612	93720	34108	817495
		817495	57225	93720	36495	781000
2)	Fair value adjustment as on 12/31/2018 = 1014179-756000 =					$       -2,58,179
	Balance in Securities Valuation Account					$       -2,58,179