Chapter 1 Problem 12-8
Requirement 1
Discount
Date Interest received Interest income amortization Book value
01/01/2008 4,742,000
12/31/2008 300,000 379,360 79,360 4,821,360
12/31/2009 300,000 385,709 85,709 4,907,069
12/31/2010 300,000 392,931 92,931 5,000,000
Requirement 2
2008
Jan. 1 Available for sale securities 4,742,000
Cash 4,742,000
Dec. 31 Cash 300,000
Interest income 300,000
31 Available for sale securities 79,360
Interest income 79,360
31 Available for sale securities 428,640
Unrealized gain – AFS 428,640
Market value - 12/31/2008 (5,000,000 x 105) 5,250,000
Book value – 12/31/2008 4,821,360
Unrealized gain – 12/31/2008 428,640
2009
Dec. 31 Cash 300,000
Interest income 300,000
31 Available for sale securities 85,709
Interest income 85,709
31 Cash 5,500,000
Unrealized gain - AFS 428,640
Available for sale securities 5,335,709 Gain on sale of AFS 592,931
Sales price (5,000,000 x 110) 5,250,000
Unrealized gain 428,640
Total 5,928,640
Investment balance – 12/31/2009 5,335,709
Unrealized gain – 12/31/2009 592,931
Another computation
Sales price 5,250,000
Book value per table – 12/31/2009 4,907,069
Gain on sale 592,931
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