On January 1, Sharp Company purchased $100,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years, and pay interest annually on December 31. Sharp does not intend to trade the bond or to hold them until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Account Name Jan. 1 Investment in AFS Securities Cash To record the purchase of investment. Debit 104,330 Credit 0 104,330 b. Prepare the entry for the receipt of interest on December 31. Date Account Name Dec. 31 Cash Interest Revenue Investment in AFS Securities To record the receipt of interest. Debit Credit 6,000 0 0 0 5,217 783 c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Unrealized Gain or Loss-OCI Fair Value Adjustment-AFS To adjust investment to fair value. Debit Credit 5,547 0 x 0 5,547 x
On January 1, Sharp Company purchased $100,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years, and pay interest annually on December 31. Sharp does not intend to trade the bond or to hold them until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Account Name Jan. 1 Investment in AFS Securities Cash To record the purchase of investment. Debit 104,330 Credit 0 104,330 b. Prepare the entry for the receipt of interest on December 31. Date Account Name Dec. 31 Cash Interest Revenue Investment in AFS Securities To record the receipt of interest. Debit Credit 6,000 0 0 0 5,217 783 c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Unrealized Gain or Loss-OCI Fair Value Adjustment-AFS To adjust investment to fair value. Debit Credit 5,547 0 x 0 5,547 x
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 15MCQ
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Question
Transcribed Image Text:On January 1, Sharp Company purchased $100,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December
31 in five years, and pay interest annually on December 31. Sharp does not intend to trade the bond or to hold them until maturity. Assume that Sharp
uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98.
Note: When answering the following questions, round answers to the nearest whole dollar.
a. Prepare the entry for the purchase of the debt investment on January 1.
Date
Account Name
Jan. 1 Investment in AFS Securities
Cash
To record the purchase of investment.
Debit
104,330
Credit
0
0
104,330
b. Prepare the entry for the receipt of interest on December 31.
Date
Account Name
Dec. 31 Cash
Interest Revenue
Investment in AFS Securities
To record the receipt of interest.
Debit
Credit
6,000
0 ✓
0
0
5,217
783
c. Record the entry to adjust the investment to fair value on December 31, if applicable.
Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers
blank (zero).
Date
Account Name
Dec. 31 Unrealized Gain or Loss-OCI
Fair Value Adjustment-AFS
To adjust investment to fair value.
Debit
Credit
5,547
0 x
0
5,547 x
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