CHAPTER 12 HOMEWORK #2
QUESTIONS:
1. Investments in bonds are categorized as either trading securities, available for sale securities, or held to maturity securities . Define these two categories.
2. Why can’t stock investments be classified as held-?to-?maturity securities? 3. Bond investments purchased as trading securities or available for sale securities are required to be reported at their fair market value on the balance sheet. Bonds purchased as held to maturity securities are required to be reported at their amortized cost. Why the difference in the reporting requirement? EXERCISES 1. Levon Company had the following transactions pertaining to its investments in bonds
during 2017:
June 30 Purchased $70,000, 10%, 10-year bonds for $76,000 cash. The bonds pay
interest semi-annually each June 30 and December 31.
Dec 31
Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $71,400.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have
been purchased as available for sale securities, but with no intent to hold longer
than one year.
(c) Indicate the accounts and amounts that would appear on the 2017 financial
statements.
(d) If the bonds are sold on January 1, 2018 for $71,600 cash, give the journal entry
to record the sale.
(e) If the bonds had been purchased as trading securities, indicate the accounts and
amounts that would appear on the 2017 financial statements.
2. Levon Company had the following transactions pertaining to its investments in bonds
during 2017:
Jan 1
Purchased $70,000, 10%, 10-year bonds for $76,000 cash. The bonds pay
interest semi-annually each June 30 and December 31.
June 30 Received the semi-annual bond interest.
Dec 31
Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $71,400.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have
been purchased as held to maturity securities.
(c) Indicate the accounts and amounts that would appear on the 2017 financial
statements.
(d) If the bonds are sold on December 31, 2024 for $73,800 cash, give the entry to
record the sale. 3. Kerr Company had the following transactions pertaining to its investments in bonds
during 2017:
June 30 Purchased $50,000, 10%, 10-year bonds for $46,000 cash. The bonds pay
interest semi-annually each June 30 and December 31.
Dec 31
Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $47,500.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have
been purchased as available for sale securities, but with no intent to hold longer
than one year.
(c) Indicate the accounts and amounts that would appear on the 2017 financial
statements.
(d) If the bonds are sold on January 1, 2018 for $47,800 cash, give the journal entry
to record the sale.
(e) If the bonds had been purchased as trading securities, indicate the accounts and
amounts that would appear on the 2017 financial statements.
4. Kerr Company had the following transactions pertaining to its investments in bonds
during 2017:
Jan 1
Purchased $50,000, 10%, 10-year bonds for $46,000 cash. The bonds pay
interest semi-annually each June 30 and December 31.
June 30 Received the semi-annual bond interest.
Dec 31
Received the semi-annual bond interest.
On December 31, 2017, the market value of the bond investment is $47,500.
Instructions
(a) Indicate the set-up of the basic bond information.
(b) Give the general journal entries for the 2017 transactions. Assume the bonds have
been purchased as held to maturity securities.
(c) Indicate the accounts and amounts that would appear on the 2017 financial
statements.
(d) If the bonds are sold on December 31, 2022 for $49,000 cash, give the entry to
record the sale. EXERCISE #1
(a) Set up of bond information:
Face Value
Stated Rate of Interest
Annual Stated Interest
Semi-annual Stated Interest
Bond Price
Premium on Bond Date Account Titles Debit Credit Account Titles Debit Credit (b) (c) On the Income Statement: On the Balance Sheet: (d)
Date (e) On the Income Statement: On the Balance Sheet: EXERCISE #2
(a) Set up of bond information:
Face Value
Stated Rate of Interest
Annual Stated Interest
Semi-annual Stated Interest
Bond Price
Premium on Bond Date Account Titles Debit Credit Account Titles Debit Credit (b) (c) On the Income Statement: On the Balance Sheet: (d)
Date EXERCISE #3
(a) Set up of bond information:
Face Value
Stated Rate of Interest
Annual Stated Interest
Semi-annual Stated Interest
Bond Price
Discount on Bond Date Account Titles Debit Credit Account Titles Debit Credit (b) (c) On the Income Statement: On the Balance Sheet: (d)
Date (e) On the Income Statement: On the Balance Sheet: EXERCISE #4
(a) Set up of bond information:
Face Value
Stated Rate of Interest
Annual Stated Interest
Semi-annual Stated Interest
Bond Price
Discount on Bond Date Account Titles Debit Credit Account Titles Debit Credit (b) (c) On the Income Statement: On the Balance Sheet: (d)
Date
