Quiz Chapter 17 Accounting 3312 Name: __________________________
Investment in debt securities at premium
On July 1, 2012, Lexington Co. purchased $200,000 of 10% bonds for $ 213,465.49 plus accrued interest as an available-for-sale security. Interest is paid on July 1 and January 1 and the bonds mature on July 1, 2016. The effective-interest rate is 8%.
Instructions
(a) Prepare the journal entry on July 1, 2012.
(b) The bonds are sold on May 1, 2014 at 101 plus accrued interest. Amortization was recorded by the effective interest rate method. Prepare all entries required to properly record the sale.(show the calculation) a . Available for sale security 213465.49
Cash 213465.49
b.
Date
Cash
Received
Interest
Revenue
Premium
Amortization
Carrying
Amount
7.1.12
1.1.13
7.1.13
1.1.14
7.1.14
10000
10000
10000
10000
8538.62
8480.16
8419.37
8356.15
1461.38
1519.84
1580.63
1643.85
213465.49
212004.11
210484.27
208903.64
207259.79
1.1.15
7.1.15
1.1.16
7.1.16
10000
10000
10000
10000
8290.39
8222.01
8150.89
8076.92
1709.61
1777.99
1849.11
1923.08
205550.18
203772.19
201923.08
200000.00
10,000*4/6 = 6,666.67
8,356.15*4/6 = 5,570.77
6,666.67-5,570.77= 1,095.9 Or 1643.85 *4/6 = 1095.9
208,903.64 – 1,095.9 = 207,807.74
200,000*1.01+6,666.67 = 208,666.67
Interest Revenue 1,095.9
Available for sale securities 1,095.9
Cash 208,666.67
Loss 5,807.74
Interest Revenue 6,666.67
Available for sale securities 207,807.74
Page 1