Q3: Yiting Corporation acquired as trading security $250 million of 4% bonds, da

Question

Q3: Yiting Corporation acquired as trading security $250 million of 4% bonds, dated July 1, on July 1, 2018, The market interest rate (yield) was 6% for bonds of similar risk and maturity. Yiting paid $200 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $212 million. 1) Prepare the journal entry to record Yiting's investment in the bonds on luly 1, 2018. GENERAL LEDGER DESCRIPTION DEBIT CREDIT Jul.1

Explanation / Answer

Date General Journal Debit Credit 01-Jul Investment in bonds 250 Discount on bond investment 50 Cash 200 31-Dec Cash ($250 x 2%) 5 Discount on bond investment (to balance) 1 Interest revenue ($200 x 3%) 6 4/2 = 2%, 6/2=3% semiannual payaments 31-Dec Fair value adjustment ($212 -$201 ) 11 Net unrealized holding gains (I/S) 11 02-Jan Cash 192 Discount on bond investment 49 Loss on sale of investments 9 Investment in bonds 250 31-Dec Net unrealized holding losses (I/S) 11 Fair value adjustment ($212 -$201) 11

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