Chapter 1 Problem 12-9
Requirement a
2008
May 1 Held to maturity securities (6,000,000 x 94%) 5,640,000
Interest income (6,000,000 x 12% x 3/12) 180,000
Cash 5,820,000
Aug. 1 Cash 360,000
Interest income (6,000,000 x 12% x 6/12) 360,000
Dec. 31 Accrued interest receivable 300,000
Interest income (6,000,000 x 12% x 5/12) 300,000
31 Held to maturity securities (8,000 x 8) 64,000
Interest income 64,000
May 1, 2008 – February 1, 2012 = 45 months
360,000 / 45 = 8,000 monthly amortization
Requirement b
2010
May 1 Held to maturity securities (8,000 x 4) 32,000
Interest income 32,000
1 Cash (6,300,000 + 180,000) 6,480,000
Held to maturity securities 5,832,000
Interest income (6,000,000 x 12% x 3/12) 180,000
Gain on sale of bonds 468,000
Original cost – May 1, 2008 5,640,000
Add: Discount amortization from May 1, 2008 to
May 1, 2010 (8,000 x 24 months) 192,000
Book value, May 1, 2010 5,832,000
Selling price (6,000,000 x 105%) 6,300,000
Less: Book value 5,832,000
Gain on sale 468,000
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