Week 3 problems

P17-1.
(Debt Securities)

2

Presented below is an amortization schedule related to Spangler Company's 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660.
Date
Cash Received
Interest Revenue
Bond Premium Amortization
Carrying Amount of Bonds
12/31/12

$108,660
12/31/13
$7,000
$5,433
$1,567 107,093
12/31/14
7,000 5,354 1,646 105,447
12/31/15
7,000 5,272 1,728 103,719
12/31/16
7,000 5,186 1,814 101,905
12/31/17
7,000 5,095 1,905 100,000

The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end. 12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Amortized cost
$107,093
$105,447
$103,719
$101,905
$100,000
Fair value
$106,500
$107,500
$105,650
$103,000
$100,000

Instructions
(a)
Prepare the journal entry to record the purchase of these bonds on December 31, 2012, assuming the bonds are classified as held-to-maturity securities.
(b)
Prepare the journal entry(ies) related to the held-to-maturity bonds for 2013.

(c)
Prepare the journal entry(ies) related to the held-to-maturity bonds for 2015.
(d)
Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale.

(e)
Prepare the journal entry(ies) related to the available-for-sale bonds for 2013.
(f)
Prepare the journal entry(ies) related to the available-for-sale bonds for 2015.

P17-3.
(Available-for-Sale Investments)

2
3

Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.
Feb. 1, 2014
Sharapova Company common stock, $100 par, 200 shares
$ 37,400
April 1
U.S. government bonds, 11%, due April 1, 2024, interest payable

April 1 and October 1, 110 bonds of $1,000 par each
110,000
July 1
McGrath Company 12% bonds, par $50,000, dated March 1, 2014, purchased at 104 plus accrued