Prepare a journal entry to record the following ivestment

Subject: Business    / Accounting
Question

9.05 Part 1

Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Beckwith would record on each interest date.

(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?

9.06 Devol Computing invested in $100,000 of face amount of 6-year bonds issued by Horton Micro Chip Company on January 1, 20X1. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Devol would record on each interest date.

(c) Prepare the journal entry that Devol would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?

9.05 Part 2

Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Beckwith would record on each interest date.

(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?

Part 3

Beckwith Boots invested $100,000 in 5-year bonds issued by Ace Brick Company. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the initial investment on January, 20X1.

(b) Prepare the journal entry that Beckwith would record on each interest date.

(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this investment, and how does the difference compare to total interest income that was recognized?

9.08 Davis Steel Company acquired 30% of the stock of Reginald Metals Company. Davis acquired this investment for purposes of being able to exert significant influence over the strategic plans and operations of Reginald. Following are events pertaining to this investment:

June 1 Purchased 30,000 shares of Reginald for $28 per share.

June 30 The fair value of Reginald’s stock was $31 per share, and the company reported June income of $80,000.

July 15 The fair value of Reginald’s stock was $30 per share, and the company declared and paid a dividend of $0.50 per share.

July 31 The fair value of Reginald’s stock was $29 per share, and the company reported July income of $60,000.

(a) What method should be used to account for this investment?

(b) Prepare journal entries to account for the activity pertaining to the investment in Reginald Metals.

(c) If the investment in Reginald Metals was insufficient to allow Davis to exert significant influence, how would the accounting approach differ?

13.06 Part 1

Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at par on January 1, 20X1, and bear interest at a rate of 8% per annum, payable semiannually.

(a) Prepare the journal entry to record the bond issue on January, 20X1.

(b) Prepare the journal entry that Ace would record on each interest date.

(c) Prepare the journal entry that Ace would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this bond issued, and how does the difference compare to total interest expense that was recognized?

Part 2

Ace Brick company issued $100,000 of 5-year bonds. The bonds were issed at 103, and bear interest at a stated rate of 8% per annum, payable semiannually. The premium is amortized by the straight-line method.

(a) Prepare the journal entry to record the initial issue on January, 20X1.

(b) Prepare the journal entry that Horton would record on each interest date.

(c) Prepare the journal entry that Horton would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this bond issue, and how does the difference compare to total interest expense that was recognized?

Part 2

Ace Brick company issued $100,000 of 5-year bonds. The bonds were issued at 98, and bear interest at a stated rate of 8% per annum, payable semiannually. The discount is amortized by the straight-line method.

(a) Prepare the journal entry to record the initial issue on January, 20X1.

(b) Prepare the journal entry that Horton would record on each interest date.

(c) Prepare the journal entry that Horton would record at maturity of the bonds.

(d) How much cash flowed “in” and “out” on this bond issue, and how does the difference compare to total interest expense that was recognized?

13.9 Standard Atlantic Shipping issued $5,000,000, face amount, of 7% bonds on January 1, 20X3. The bonds are 5-year bonds, and Interest is payable every 6 months. At the time of issue, the market rate of interest was only 6%, so the bonds were issued at a premium.

(a) Prepare calculations showing that issue price was approximately $5,213,235.

(b) Use the effective-interest method of amortization, and prepare the journal entries that Standard Atlantic Shipping would record on January 1, 20X3, June 30, 20X3, and December 31, 20X3.

(c) Show how the bonds would appear on Standard Atlantic Shipping’s December 31, 20X3 balance sheet.