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Chapter 10: Q8E_1 (page 569)

Accounting for debt investments

Griffin purchased a bond on January 1, 2018, for \(140,000. The bond has a face value of \)140,000 and matures in 20 years. The bond pays interest on June 30 and December 31 at a 3% annual rate. Griffin plans on holding the investment until maturity.

Requirements

1. Journalize the 2018 transactions related to Griffin’s bond investment. Explanations are not required.

Short Answer

Expert verified

Both sides of the journal totals$144,200.

Step by step solution

01

Definition of Maturity Date

A maturity date can be defined as the specific date on which the borrower is liable to repay the principal amount of the loan and any interest due.

02

Journal Entry for Transaction

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2018

Held to maturity – debt investment

$140,000

Cash

$140,000

30 June 2018

Cash

$2,100

Interest revenue

$2,100

31 Dec 2018

Cash

$2,100

Interest revenue

$2,100

$144,200

$144,200

Working note:

Calculation of Interest Revenue:

Interestrevenue=Facevalue×Interestrate×612=$140,000×3%×612=$2,100

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Most popular questions from this chapter

Question: S10-6 Accounting for debt investments

On June 1, 2018, Josh’s Restaurant decides to invest excess cash of \(54,400 from the tourist season by purchasing a Jackrabbit, Inc. bond at face value. At year-end, December 31, 2018, Jackrabbit’s bond had a market value of \)51,200. The investment is categorized as an available-for-sale debt investment and will be held for the short-term.

Requirements

Journalize the transactions for Josh’s investment in Jackrabbit, Inc. for 2018.

What is comprehensive income, and what does it include?

On January 1, 2018, the College Corporation decides to invest in Small Town bonds. The bonds mature on December 31, 2022, and pay interest of 4% on June 30 and December 31. The market rate of interest was 4% on January 1, 2018, so the $20,000 maturity-value bonds sold for face value. College Corporation intends to hold the bonds until maturity. Journalize the transactions related to College Corporation’s investment in Small Town bonds during 2018.

Accounting for debt investments

League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up intends to hold the investment until maturity.

Requirements

1. How would the bond investment be classified on League Up’s December 31, 2018, balance sheet?

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’s 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’s investment transactions. Explanations are not required.

See all solutions

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