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Chapter 10: Q.10-21PGB_2 (page 573)

Question: P10-21B Accounting for debt investments

Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year. They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond investment until maturity.

Requirements

2. Journalize the entry required on the Tyson Way bonds maturity date. (Assume the last interest payment has already been recorded.)

Short Answer

Expert verified

Answer

Journal entry at maturity date will include acredit of the investment account and debit of the cash account.

Step by step solution

01

Definition of Annual Interest Rate

The rate used to determine interest expense for the fiscal year is the annual interest rate. It is multiplied by the principal amount to determine interest expenses.

02

Journal Entry at Maturity Date

Date

Accounts and Explanation

Debit $

Credit $

31 Dec 2022

Cash

$800,000

Held-to-maturity 鈥� debt investment

$800,000

$800,000

$800,000

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Most popular questions from this chapter

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

2. In what category and at what value would Bell report the asset on the December 31, 2018, balance sheet? In what account would the market price change in Grant鈥檚 bond be reported, if at all?

Question: S10-5 Accounting for debt investments

On February 1, 2018, Bell Co. decides to invest excess cash of \(16,800 by purchasing a Grant, Inc. bond at face value. At year-end, December 31, 2018, the fair value of the Grant bond was \)19,600. The investment is categorized as a trading debt investment.

Requirements

What was the net effect of the investment on Bell鈥檚 net income for the year ended December 31, 2018?

Where on the financial statements is an unrealized holding gain or loss on available-for-sale debt investments reported?

Accounting for debt investments

Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.

Requirements

1. Journalize any required 2018 entries for the bond investment.

Accounting for equity investments

Strategic Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 800 shares of Phyflexon stock, paying \(50 per share. The investment represents 4% ownership in Phyflexon鈥檚 voting stock. Strategic does not have significant influence over Phyflexon. Strategic intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.24 per share on the Phyflexon stock.

Dec. 31 Adjusted the investment to its current market value of \(45 per share.

31 Phyflexon reported net income of \)330,000 for the year ended 2018.

Requirements

1. Journalize Strategic鈥檚 investment transactions. Explanations are not required.

See all solutions

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