Req 1 to 3 Req 4A Req 4B Req 5 Prepare the relevant journal entries on the respe

Question

Req 1 to 3 Req 4A Req 4B Req 5 Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations Enter your answers in millions rounded to 2 decimal places, (i.e., 5,500,000 should be entered as 5.50).) View transaction list View journal entry worksheet No Date General Journal Debit Credit January 01, 2018 Investment in bonds 210.00 Discount on bond investment 18.00 Cash 192.00 2 June 30, 2018 Cash 6.30 Discount on bond investment 1.38 Interest revenue 7.68 December 31 2018 Cash 6.30 Discount on bond investment Interest revenue 7.68

Explanation / Answer

Everything in Millions

As the yield was mentioned as 8%, effective interest rate for 6 months is 4% and nominal rate (cash rate) is 3%

1.)

January 1, 2018

Investment in Bonds A/c Dr $210

To Discount on Bonds A/c $ 18

To Cash A/c $192

and so on. Which gives

2.)

June 30, 2018

Cash A/c Dr $6.30

Discount on Bonds A/c Dr $1.38

To Interest Income A/c $7.68

3.)

Dec 31, 2018

Cash A/c Dr $6.3000

Discount on Bonds A/c Dr $1.4352

To Interest Income A/c $7.7352

4-a.)

As the investment is classified as short term active trading, it should be recognised only at it's fair value on the balance sheet date. Hence it should be appearing on balance sheet date at $200 Millions

200

So, to record this change in value the entry is

4-b.)

Fair value Adjustment A/c Dr $5.1848

To Unrealised Gain on Bonds A/c $5.1848

5.)

Operating Cash Flow increases by $12.6 Million (6.3*2)

Investing Cash Flow decreases by $192 Million

Good luck

Date Opening Cash Interest @ 3% On $210 Million Effective Interest @ 4% on Opening Discount Amortization Closing 1/1/18 192 30/6/18 192 6.3 7.68 1.38 193.38 31/12/18 193.38 6.3 7.7352 1.4352 194.8152 30/6/19 194.8152 6.3 7.7926 1.4926 196.3078

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