Garfield Company purchased, on January 1, 2017, as a held-to-maturity investment, $80,000 of the 9%, 5-year bonds of Chester Corporation for $74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.
Discount amortization is the process of reducing the cost of the bond in each period to show the reality of the bond.
January 1, 2017
Being entry to record the purchase of bonds
December 31, 2017
Being the entry for bond interest and amortization of the discount
Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.
Research and development costs
Legal costs to obtain patent
Payment of 7 months’ rent on property leased by Bryan
Premium on common stock
Unamortized bond discount on bonds due March 31, 2037
Promotional expenses related to start-up of business
Operating losses for first 6 months
Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.
Hendricks Corporation purchased trading investment bonds for $50,000 at par. On December 31, Hendricks received an annual interest of $2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the purchase of the investment, (b) the interest received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.)
Hillsborough Co. has a held-to-maturity investment in the bonds of Schuyler Corp. with a carrying value of $70,000. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is uncollectible. Prepare the journal entry, if any, to record the reduction in value.
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