Question

Marketable Debt Securities
Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities. Assume that these transactions occur in 2016 (before the new rules for securities went into effect).

a. Loudder Inc. purchases 6,000 bonds with a face value of $1,000 per bond. The bonds are purchased at par for cash and pay interest at a semi-annual rate of 4%.
b. Loudder receives semi-annual cash interest of $240,000.
c. Year-end fair value of the bonds is $978 per bond.
d. Shortly after year-end, Loudder sells all 6,000 bonds for $970 per bond.

Use negative signs with answers, if appropriate.                        

				Balance Sheet								Income Statement
			Noncash				Contrib.		Earned
Transaction	Cash Asset	+	Assets	=	Liabilities	+	Captial	+	Capital		Revenues	-	Expenses	=	Net income
Loudder purchases bonds.	Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00
Loudder receives cash interest.	Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00
Bonds year-end fair value is determined.	Answer Correct 1.00 points out of 1.00		Answer Incorrect 0.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Incorrect 0.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00
Loudder sells all bonds	Answer Correct 1.00 points out of 1.00		Answer Incorrect 0.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Incorrect 0.00 points out of 1.00		Answer Correct 1.00 points out of 1.00		Answer Incorrect 0.00 points out of 1.00		Answer

Answer 1

Income statement

Answer = 1)

Balance Sheet

Non Cash

Contribution

Earned

Revenues

"-"

Expenses

"="

Net income

Transaction

Cash Assets

"+"

Assets

"="

Liabilities

"+"

Capital

"+"

Capital

"-"

"="

Louder purchase Bonds

$                                       -60,00,000

"+"

$                60,00,000

"="

0

"+"

0

"+"

0

0

"-"

0

"="

0

Louder Receives Cash Interest

$                                           2,40,000

"+"

$                                -

"="

0

"+"

0

"+"

0

240000

"-"

0

"="

240000

Bonds Year End Fair Value id determined

$                                                         9

"+"

$           -1,32,000.00

"="

9

"+"

9

"+"

$ -1,32,000.00

0

"-"

0

"="

0

Louder Sells All Bonds

$                                         58,20,000

"+"

$             1,32,000.00

"="

"+"

"+"

$   1,32,000.00

"-"

$ 1,80,000

"="

-180000

Working Notes: 1)

Bonds Carrying value at year End

Purchae value =

$                                         60,00,000

Carrying value

$                                         58,68,000

Unrealized Loss

$                                           1,32,000

Working Notes: 2)

Purchae value =

$                                         60,00,000

Less : Sales Value

$                                         58,20,000

Realized Loss

$                                           1,80,000