Question
In: Accounting
1. Precision Castparts builds sophisticated machinery for the aerospace industry and frequently invests excess cash in corporate...
1. Precision Castparts builds sophisticated machinery for the aerospace industry and frequently invests excess cash in corporate bonds, which it holds to maturity. The following transactions relate to Precision's bond investments during 2019. Precision has the positive ability and intent to hold all bonds until maturity, and their year-end is December 31.
Apr. 30th: Purchased $16 million of 5% Marmon Corp. bonds at face value.
June 30th: Received the $400,000 semiannual interest payment on the Marmon bonds.
Oct. 1st: Purchased $10 million of 4% General Re bonds at face value. These bonds pay interest on July 1st and January 1st of each year.
Dec. 1st: Sold the Marmon bonds for $16.5 million.
Dec. 31st: Prepare any necessary adjusting entries. The fair value of the General Re bonds was $10.2 million. Remember to accrue interest.
1. Debt Securities - AFS. Use the same data as Problem 1, but now assume the bonds are classified as Available for Sale.
a. Prepare the appropriate journal entry for each transaction above, as well as any adjusting journal entries necessary at year-end.
a. Indicate amounts that Precision will show on its 2019 Income Statement, Statement of Comprehensive Income, and Balance Sheet
i. Income Statement
ii. Statement of Comprehensive Income
iii. Balance Sheet
Solutions
Expert Solution
| Held to Maturity:- | |||||
| Journal Entries | |||||
| Amount in Millions $ | |||||
| Date | Account Tiltles | Debit | Credit | ||
| April.30 | Debt Investments-HTM-5% Marmon Corp. Bonds | 16.00 | |||
| Cash | 16.00 | ||||
| June.30 | Cash | 0.40 | |||
| Interest Revenue | 0.40 | ||||
| Oct.1 | Debt Investments-HTM-4% General Re Bonds | 10.00 | |||
| Cash | 10.00 | ||||
| Dec.1 | Cash | 16.50 | |||
| Debt Investments-HTM-5% Marmon Corp. Bonds | 16.00 | ||||
| Gain on sale of Debt Investments | 0.50 | ||||
| Dec.31 | Interest Receivable | 0.10 | |||
| Interest Revenue | 0.10 | ||||
| ( 10 x 4% x 3 ) /12 | |||||
| Debt Investment -HTM will not have any fair value adjustment at year end. | |||||
| Available for Sale:- | |||||
| Journal Entries | |||||
| Amount in Millions $ | |||||
| Date | Account Tiltles | Debit | Credit | ||
| April.30 | Debt Investments-AFS-5% Marmon Corp. Bonds | 16.00 | |||
| Cash | 16.00 | ||||
| June.30 | Cash | 0.40 | |||
| Interest Revenue | 0.40 | ||||
| Oct.1 | Debt Investments-AFS-4% General Re Bonds | 10.00 | |||
| Cash | 10.00 | ||||
| Dec.1 | Cash | 16.50 | |||
| Debt Investments-AFS-5% Marmon Corp. Bonds | 16.00 | ||||
| Gain on sale of Debt Investments | 0.50 | ||||
| Dec.31 | Interest Receivable | 0.10 | |||
| Interest Revenue | 0.10 | ||||
| ( 10 x 4% x 3 ) /12 | |||||
| Dec.31 | Fair value adjustment -AFS | 0.20 | |||
| Unrealized Gain | 0.20 | ||||
| ( 10.2 - 10 ) | |||||
| (i) | Income Statement | |||
| Amount in Millions $ | ||||
| Interest Revenue | 0.50 | (0.40 + 0.10 ) | ||
| (ii) | Statement of comprehensive income | |||
| Amount in Millions $ | ||||
| Unrealized gain | 0.20 | |||
| (iii) | Balance Sheet | |||
| Amount in Millions $ | ||||
| Assets* | ||||
| Debt Investments-AFS-4% General Re Bonds | 10.00 | |||
| Add: | Fair value adjustment -AFS | 0.20 | ||
| Total |
 ekkarill92 answered 2 years agoRelated Solutions1. Precision Castparts builds sophisticated machinery for the aerospace industry and frequently invests excess cash in...1. Precision Castparts builds sophisticated machinery for the
aerospace industry and frequently invests excess cash in corporate
bonds, which it holds to maturity. The following
transactions relate to Precision’s bond investments during 2019.
Precision has the positive ability and intent to hold all bonds
until maturity, and their year-end is December 31.
Apr.
30th: Purchased $16 million of 5% Marmon
Corp. bonds at face value.
June
30th: Received the $400,000 semiannual
interest payment on the Marmon bonds.
Oct. 1st: Purchased
$10 million of...
1. Debt Securities - Trading. Precision Castparts builds sophisticated machinery for the aerospace industry and frequently invests excess...1. Debt Securities -
Trading. Precision Castparts builds
sophisticated machinery for the aerospace industry and frequently
invests excess cash in corporate bonds, which it holds to maturity.
The following transactions relate to Precision's bond investments
during 2019. Precision has the positive ability and intent to hold
all bonds until maturity, and their year-end is December 31.
Apr. 30th: Purchased
$16 million of 5% Marmon Corp. bonds at face value.
June 30th: Received the
$400,000 semiannual interest payment on the
Marmon bonds.
Oct....
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sophisticated machinery for the aerospace industry and frequently
invests excess cash in corporate bonds, which it holds to maturity.
The following transactions relate to Precision's bond investments
during 2019. Precision has the positive ability and intent to hold
all bonds until maturity, and their year-end is December 31.
Apr. 30th: Purchased $16 million of 5% Marmon Corp. bonds at
face value.
June 30th: Received the $400,000 semiannual interest payment on
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