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A. On January 1, 2014, Moss Company acquires $300,000 of Adam Company's 10-year, 10% bonds at a price of $319,254 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity.

   1.  (2 Points) Assuming that Moss Company uses the effective-interest method, prepare a 3-year schedule of interest revenue and bond premium amortization.

      2. (1 Point) Prepare the journal entry for the interest receipt of December 31, 2014 and the premium amortization under the effective-interest method.

      3. (2 Points) Assuming that Moss Company uses the straight-line method, prepare a 3-year schedule of interest revenue and bond premium amortization.

      4. (1 Point) Prepare the journal entry for the interest receipt of December 31, 2014 and the premium amortization under the straight-line method.

      5. (1 Point) At December 31, 2016, which method provides a larger investment on the balance sheet? Which method shows more interest income on the income statement?   

B.   On its December 31, 2014 balance sheet, Calhoun Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment (available-for-sale) account. There was no change during 2015 in the composition of Calhoun's portfolio of equity investments held as available-for-sale securities. The following information pertains to that portfolio:

Securities Cost Fair Market Value on 12/31/15
x $125,000 $160,000
y 100,000 90,000
z 175,000 125,000
$400,000 $375,000

      1. (1 Point) Prepare the adjusting entry at 12/31/15.

      2. (1 Point) Show the Asset section of Investments – Available-for-Sale at 12/31/15.

      3. (1 Point) If Calhoun Company had Common Stock of $300,000 and Retained Earnings of $160,000, show the Equity section of the Balance Sheet at 12/31/15.

PLEASE MAKE SURE TO DO THE AMORTIZATION TABLES, THOSE ARE THE PARTS THAT I NEED MOST FOR PART A.

Explanation / Answer

A)1.INTEREST=$3,00,000*10%=$30,000

BOND PREMIUM=$3,19,254-$3,00,000=$19,254

DISOUNT RATE=9%=0.917,0.842,0.772 FOR 3 YEARS RESPECTIVELY

AMORTISATION IN YEAR 1=$19,254*0.917/2.531=$6,976

AMORTISATION IN YEAR 2=$19,254*0.842/2.531=$6,405

AMORTISATION IN YEAR 3=$19,254*0.772/2.531=$5,873

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