Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
3021 HW 1
Q: 12-2
Securities are investments in bonds that have a specified maturity date.
The bonds usually recorded at cost. Any investor who has the ability or
positive intends to hold the securities to maturity can be classified as
held-to-maturity. For the held-to-maturity investments we do not
recognize unrealized holding gains and losses, and they are reported on
the balance sheet at amortized cost.
BE: 1
LANCE BROTHERS ENTERPRISE.
Stated rate: 3% / 2 (semiannually) = 1.5%
Market Rate: 4% / 2 (semiannually)=2%
a)
DEBIT
$ 720,000
CREDIT
$ 120,000
$ 600,000
Outstanding Balance
Effective rate 4%/2
Effective Interest
$ 600,000 x
2% **
=
$ 12,000
**Interest paid semiannually then: one-half the market rate would be
4%/2 = 2%
JOURNAL ENTRY DEC. 31 2013
DEBIT
CREDIT
Cash (stated rate x face amount)
$ 10,800
(1.5% x $ 720,000)
=
Discount on Bond Investment ($
12,000 - $ 10,800)
$ 1,200
=
Investment revenue (market
rate x outstanding balance) (2% x
$ 12,000
$600,000) =
The amortized cost of the investment now is $ 720,000 118,800*** =
$ 601,200
($120,000 $1,200) = 118,800***
E 12-1 Tanner UNF
Stated rate: 6% / 2 (semiannually) = 3%
Market Rate: 8% / 2 (semiannually)=4%
1)
JOURNAL ENTRY JULY 1, 2013
DEBIT
CREDIT
ACCT. 3021 HW 1
Investment in Bonds
$ 240 million
$ 40 million
$ 200 million
2)
JOURNAL ENTRY DEC. 31 2013
Cash (stated rate x face amount)(3% x
$ 240 millions)
=
DEBIT
$ 7.2
million
$ 0.8
millions
CREDIT
$ 8 million
3)
In balance sheet of Dec. 31 2013 Tarner UNF will report investment amount
of $ 200.8 million which is book value (amortized cost) of the securities at
that moment. $240M $39.2M = 200.8M
4)
JOURNAL ENTRY JANUARY 02. 2014
Cash (selling price)
DEBIT
$190 million
$ 20 million
CREDIT
$ 39.2 million
$9.2 million*
Investment in Bonds
$ 240 million
DEBIT
Cash
$ 2.4M
Investment revenue
CREDIT
$ 2.4M
DEBIT
$30M
Cash
$30M
DEBIT
$ 8.9M
Cash
CREDIT
$ 8.9M
DEBIT
$ 0.8
million
$ 0.3
million
Investment revenue
ACCT. 3021 HW 1
CREDIT
CREDIT
$ 1.1 million
E 12 3
1)
FASB ACS 320 -10 -25: Investments Debt and Equity Securities
Overall Recognition.
ACCT. 3021 HW 1
2)
FASB ACS 320 - 10 25 4: Investments - Debt and Equity Securities
Overall - Recognition - Circumstances Not Consistent with Held-toMaturity Classification.
3)
P 12-1
Fuzzy Monkey Technologies Inc.
1)
JOURNAL ENTRY JANUARY 1, 2013
Investment in Bonds
DEBIT
$ 80 million
CREDIT
$ 14 million
$ 66 million
Outstanding Balance
$ 80 million
Effective rate
4%*
Effective Interest
$3.2 million
ACCT. 3021 HW 1
x
*Interest paid semiannually then: one-half the market rate would be
8%/2 = 4%
JOURNAL ENTRY JUN 30,
2013
Cash
Discount on bond Investment
Interest Revenue (5% x $
66M)
CREDIT
DEBIT
$3.2 million
$0.1 million*
$3.30 million
3)
JOURNAL ENTRY DEC. 31,
2013
Cash
Discount on bond investment
DEBIT
$3.2million
$0.105million
**
06/30/1
3
12/31/1
3
CREDIT
CASH
EFFECTIVE
INTEREST INTEREST
($80M x
4%)=$3.
2M
$3.2M
5% x
($66M)=$3.3M
$ 3.2M
5% x
($66.1M)=$3.30
5M
$3.305 million
INCREASE IN
BALANCE
OUTSTANDING
BALANCE
$3.3M - $3.2M=$
0.1M*
$66M+
$0.1M=$66.1M
4)
Fuzzy Monkey will report book value of its investment in the balance
sheet on Dec 31, 2013. It is also amortized cost of the investment.
BALANCE SHEET AS OF DECEMBER 31, 2013
Investment in bonds
Less: Discount on bond investment ($14 $0.1 $0.105)
Book Value (amortized cost)
5)
Fuzzy Monkey`s cash flow statement of 2013.
$ 80 million
$13.795
$ 66.205
ACCT. 3021 HW 1
Operating activities:
Collections of interests - $ 3.2M ( JUN 30, 2013)+ 3.2M(DEC. 31, 2013)
= $6.4M