Problems

1. On May 1, 2019, Binus Co purchase $120,000, 5 years bond of Hippo Co with

interest 7% and yield 5% for 130,502. The interest will be paid semi-annually on
November 1 and May 1. Following schedule present fair value of bond every end
of the year:

Year Fair Value

December 31, 2019 $128,650
December 31, 2020 $129,458
December 31, 2021 $127,450
December 31, 2022 $124,120
December 31, 2023 $120,000
May 1, 2024 $120,000

Instruction:

a. Prepare the schedule of amortisation of the bonds

Cash Interest Bond Premium Carrying
Date Received Revenue Amortization Amount
01/05/201
9 130.502
01/11/201 -
9 4.200 3.263 937 129.565
01/05/202 -
0 4.200 3.239 961 128.604
01/11/202 -
0 4.200 3.215 985 127.619
01/05/202 -
1 4.200 3.190 1.010 126.609
01/11/202 -
1 4.200 3.165 1.035 125.574
01/05/202 -
2 4.200 3.139 1.061 124.514
01/11/202 -
2 4.200 3.113 1.087 123.427
01/05/202 -
3 4.200 3.086 1.114 122.312
01/11/202 -
3 4.200 3.058 1.142 121.170
01/05/202 -
4 4.200 3.029 1.171 120.000

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 b. Prepare journal entry to record the purchase of bonds on May 1, 2019,
assuming the bonds are classified as Held-for-collection investment
DEBT INVESTMENT 130.502
CASH 130.502

c. Prepare journal entry(ies) related to held-for-collection bonds for 2020

01/05 CASH 4.200
DEBT INVESTMENT (961*4/6) 641
INTEREST RECEIVABLE (4.200*2/6) 1.400
INTEREST REVENUE (3.293*5/6) 2.195

01/11 CASH 4.200

DEBT INVESTMENT 985
INTEREST REVENUE 3.215

31/12 INTEREST RECEIVABLE (4.200*2/6) 1.400

DEBT INVESTMENT (1.010*2/6) 337
INTEREST REVENUE (3.190*2/6) 1.063

d. Prepare journal entry(ies) related to held-for-collection bonds for 2022

e. 01/05 CASH 4.200
DEBT INVESTMENT (1.061*4/6) 707
INTEREST RECEIVABLE (4.200*2/6) 1.400
INTEREST REVENUE (3.139*4/6) 2.093

01/11 CASH 4.200

DEBT INVESTMENT 1.087
INTEREST REVENUE 3.113

31/12 INTEREST RECEIVABLE (4.200*2/6) 1.400

DEBT INVESTMENT (1.114*2/6) 371
INTEREST REVENUE (3.086*2/6) 1.029

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 f. Prepare journal entry to record the purchase of bonds on May 1, 2019,
assuming the bonds are classified as trading investment
DEBT INVESTMENT 10.502
UNREALIZED GAIN OR LOSS 10.502

g. Prepare journal entry(ies) related to trading bonds for 2021

01/05 CASH 4.200
DEBT INVESTMENT (1.010*4/6) 673
INTEREST RECEIVABLE (4.200*2/6) 1.400
INTEREST REVENUE (3.190*4/6) 2.127

01/11 CASH 4.200

DEBT INVESTMENT 1.035
INTEREST REVENUE 3.165

31/12 INTEREST RECEIVABLE (4.200*2/6) 1.400

DEBT INVESTMENT (1.061*2/6) 354
INTEREST REVENUE (3.139*2/6) 1.046

UNREALIZED GAIN OR LOSSES *1.047

FAIR VALUE ADJUSTMENT 1.047

*Fair value of bonds in 31 Dec 2022 - Carrying Amount of Bonds

124.120 - (123.427 - 354) = 1.047

h. Prepare journal entry(ies) related to trading bonds for 2023

01/05 CASH 4.200

DEBT INVESTMENT (1.114*4/6) 743

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 INTEREST RECEIVABLE (4.200*2/6) 1.400
INTEREST REVENUE (3.086*4/6) 2.057

01/11 CASH 4.200

DEBT INVESTMENT 1.142
INTEREST REVENUE 3.058

31/12 INTEREST RECEIVABLE (4.200*2/6) 1.400

DEBT INVESTMENT (1.171*2/6) 390
INTEREST REVENUE (3.029*2/6) 1.010

UNREALIZED GAIN OR LOSSES *975

FAIR VALUE ADJUSTMENT 975

*Fair value of bonds in 31 Dec 2022 - Carrying Amount of Bonds

120.000 - (121.170 - 390) = (780)

2. Bantex Corp. Carries an account in its general ledger called Investments, which
contained debits for investment purchases, and no credits, with the following
descriptions.

March 1, 2015 Castle Company ordinary shares $90 par, 100 shares for
$86,700
May 1 Government bonds, 10%, due april 1 2025, interest payable May
1 and November 1, 120 bonds of $1,000 par each for $120,000
August 1 Apple company 13% bonds, par $60,000, dated February 1,
2015 purchased at 103, plus accrued interest payable annualy
on February 1, due February 1,2025 for $65,700

a. Prepare entries necessary to classify the amounts into proper accounts,

assuming that Paz plans to actively manage these investments.
Accounts Db Cr

Debt Investment* 181.800

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 Equity Investment 86.700

Interest Revenue 3.900

Investment** 3.900

*120.000+(60.000 X 1,03)
**60.000 X 13% X 6/12

b. Prepare the entry to record the accrued interest on December 31,2015

Accounts Db Cr

Interest Receivable* 5.250

Interest Revenue 5.250

*(120000 X 10% X2/12)+(60000 X 13% X 5/12)

c. The fair value of the investment on December 31, 2015, were:

Castle company share $82,500
Government Bond $134,000
Apple company bonds $71,600
What entry(ies), if any, would you recommend be made?

Fair Market Value Unrealized Gain/Losses (b) -

Security Book Value (a) (b) ( c)
-
Castle Company 86.700 82.500 4.200

Government Bond 120.000 134.000 14.000

Apple Company Bond 65.700 71.600 5.900

272.400 288.100 15.700

Unrealized Gain or Losses 15.700

Fair Value Adjustment 15.700

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 d. The government bonds were sold on July 1, 2017, for $139,600, plus accrued
interest. Please provide the proper entry
Cash 139.600
Debt Investment 120.000
Gain on sale of investment 19.600

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