1 ABC Company purchased $900,000 of 10% bonds of CBA Company on January 1, 2015,
ID: 2446090 • Letter: 1
Question
1
ABC Company purchased $900,000 of 10% bonds of CBA Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. ABC Company uses the effective-interest method and plans to hold these bonds to maturity.
For the year ended December 31, 2015, ABC Company should report interest revenue from the CBA Company bonds of:
$93,078
None of these answers are correct
$90,000
$95,382
$93,169
2
Russell, Inc. acquired 30% of Dayton Corporation's voting stock on January 1, 2014 for $800,000. During 2014, Dayton earned $320,000 and paid dividends of $200,000. Russell's 30% interest in Dayton gives Russell the ability to exercise significant influence over Dayton's operating and financial policies. During 2015, Dayton earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, Russell sold half of its stock in Dayton for $528,000 cash.
What should be the gain on sale of this investment in Russell's 2015 income statement?
$110,000
None of these answers are correct
$98,000
$128,000
$80,000
3
Lakeshore Company purchased $2,000,000 of 8%, 5-year bonds from Rondon, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $2,083,160 at an effective interest rate of 7%. Using the effective-interest method, Lakeshore Company decreased the Available-for-Sale Debt Securities account for the Rondon, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $7,080 and $7,320, respectively.
At December 31, 2014, the fair value of the Rondon, Inc. bonds was $2,120,000. What should Lakeshore Company report as other comprehensive income and as a separate component of stockholders' equity?
None of these answers are correct
$36,840
$14,400
No entry should be made
$51,240
4
Russell Company purchased $900,000 of 8%, 5-year bonds from Carpenter, Inc. on January 1, 2014, with interest payable on July 1 and January 1. The bonds sold for $937,422 at an effective interest rate of 7%. Using the effective interest method, Russell Company decreased the Available-for-Sale Debt Securities account for the Carpenter, Inc. bonds on July 1, 2014 and December 31, 2014 by the amortized premiums of $3,186 and $3,294, respectively.
At February 1, 2015, Russell Company sold the Carpenter bonds for $927,000. After accruing for interest, the carrying value of the Carpenter bonds on February 1, 2015 was $930,375. Assuming Russell Company has a portfolio of available-for-sale debt investments, what should Russell Company report as a gain (or loss) on the bonds?
$0
($26,433)
($3,375)
None of these answers are correct
($19,683)
Explanation / Answer
ABC Company purchased $900,000 of 10% bonds of CBA Company on January 1, 2015, paying $846,225. The bonds mature January 1, 2025; interest is payable each July 1 and January 1. The discount of $53,775 provides an effective yield of 11%. ABC Company uses the effective-interest method and plans to hold these bonds to maturity.
For the year ended December 31, 2015, ABC Company should report interest revenue from the CBA Company bonds of:
Interest Revenue on 1st semi annual period = 846225*11%*1/2 = 46542
Interest Recieved = 900000*10%*1/2 = 45000
Discount Amortised in 1st semi annual period = 46542-45000 = 1542
Investment account after Discount Amortised = 846225+1542 = 847767
Interest Revenue on 2nd semi annual period = 847767*11%*1/2 = 46627
ABC Company should report interest revenue = Interest Revenue on 1st semi annual period + Interest Revenue on 2nd semi annual period
ABC Company should report interest revenue = 46542+46627
ABC Company should report interest revenue = $ 93,169
Answer
$93,169
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