Marketable Debt Securities Use the financial statement effects template to recor
ID: 2535675 • Letter: M
Question
Marketable Debt Securities
Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities. Assume that these transactions occur in 2016 (before the new rules for securities went into effect).
a. Loudder Inc. purchases 6,000 bonds with a face value of $1,000 per bond. The bonds are purchased at par for cash and pay interest at a semi-annual rate of 4%.
b. Loudder receives semi-annual cash interest of $240,000.
c. Year-end fair value of the bonds is $978 per bond.
d. Shortly after year-end, Loudder sells all 6,000 bonds for $970 per bond.
Use negative signs with answers, if appropriate.
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Explanation / Answer
Income statement Answer = 1) Balance Sheet Non Cash Contribution Earned Revenues "-" Expenses "=" Net income Transaction Cash Assets "+" Assets "=" Liabilities "+" Capital "+" Capital "-" "=" Louder purchase Bonds $ -60,00,000 "+" $ 60,00,000 "=" 0 "+" 0 "+" 0 0 "-" 0 "=" 0 Louder Receives Cash Interest $ 2,40,000 "+" $ - "=" 0 "+" 0 "+" 0 240000 "-" 0 "=" 240000 Bonds Year End Fair Value id determined $ 9 "+" $ -1,32,000.00 "=" 9 "+" 9 "+" $ -1,32,000.00 0 "-" 0 "=" 0 Louder Sells All Bonds $ 58,20,000 "+" $ 1,32,000.00 "=" "+" "+" $ 1,32,000.00 "-" $ 1,80,000 "=" -180000 Working Notes: 1) Bonds Carrying value at year End Purchae value = $ 60,00,000 Carrying value $ 58,68,000 Unrealized Loss $ 1,32,000 Working Notes: 2) Purchae value = $ 60,00,000 Less : Sales Value $ 58,20,000 Realized Loss $ 1,80,000
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