Market interest rate = 12%

(bonds sold at face value)

09/30/2009
Investment revenue

Cash (12% 700,000 6/12)

Investment revenue
(10% 735,533 6/12)
Premium on bond investment

42,000
36,777

Interests receivable
(12% 700,000 3/12)
Investment revenue
(10% 730,310 3/12)
Premium on bond investment

21,000

03/31/2010
Investment revenue

5,223

18,258
2,742

Cash
42,000
(12% 700,000 6/12)
Interest receivable
21,000
Investment revenue
18,257
(10% 730,310 3/12)
Premium on bond investment
2,743

So on

Note:

se

03/31/2012
Repayment of
principal

42,000

21,000
17,664
3,336

Fo
rU

03/31/2012
Investment revenue

Cash
(12% 700,000 6/12)
Interest receivable
Investment revenue
(10% 706,671 3/12)
Premium on bond investment
Cash
Investment in bonds

Investment in bonds
Cash

700,000
700,000

Price of the bonds = $42,0005.07569 [PVF of an

ordinary annuity of $1: n=6, i=5% (table
4)]+$700,0000.74622 [PVF of $1:n=6, i=5% (table
2)] = $213,179+$522,354=$735,533

700,000
700,000

Cash (12% 700,000 6/12)

Investment revenue
(12% 700,000 6/12)

42,000
42,000

Interests receivable
(12% 700,000 3/12)
Investment revenue
(12% 700,000 3/12)

21,000

Cash
(12% 700,000 6/12)
Interest receivable
Investment revenue
(12% 700,000 3/12)

42,000

Cash
(12% 700,000 6/12)
Interest receivable
Investment revenue
(12% 700,000 3/12)

42,000

In

12/31/2009
Adjusting entry

700,000
35,533
735,533

Market interest rate = 14%

(bonds sold at a discount)

Investment in bonds
Premium on bond investment
Cash

04/01/ 2009
Purchase of
investment

AC

Market interest rate = 10%

(bonds sold at a premium)

11
2

On April 1, 2009, United Intergroup, Inc. purchased as an investment of $700,000 of 12% bonds, dated April 1, issued by Masterwear Industries. Interest is paid semiannually on September 30
and March 31. The bonds mature in three years, on March 31, 2012. United Intergroup and Masterwear Industries both use calendar year as their fiscal year. This investment is classified as
held-to-maturity.

Cash
Investment in bonds

21,000

21,000
21,000

21,000
21,000

700,000
700,000

Price of the bonds = $42,0004.91732 [PVF of an

ordinary annuity of $1: n=6, i=6% (table
4)]+$700,0000.70496 [PVF of $1:n=6, i=6% (table
2)] = $206,527+$493,473=$700,000

Investment in bonds
700,000
Discount on bond investment
33,367
Cash
666,633
Cash (12% 700,000 6/12)
Discount on bond investment
Investment revenue
(14% 666,633 6/12)

42,000
4,664
46,664

Interests receivable
(12% 700,000 3/12)
Discount on bond investment
Investment revenue
(14% 671,297 3/12)

21,000

Cash
(12% 700,000 6/12)
Discount on bond investment
Interest receivable
Investment revenue
(14% 671,297 3/12)

42,000

Cash
(12% 700,000 6/12)
Discount on bond investment
Interest receivable
Investment revenue
(14% 693,456 3/12)

42,000

Cash
Investment in bonds

2,496
23,496

2,496
21,000
23,496

3,272
21,000
24,272

700,000
700,000

Price of the bonds = $42,0004.76654 [PVF of an

ordinary annuity of $1: n=6, i=7% (table
4)]+$700,0000.66634 [PVF of $1:n=6, i=7% (table
2)] = $200,195+$466438=$666,633