Problem 18-6

Requirement a
Mar.1 Trading securities (2M x 93%) 1,860,000
Interest income (2M x 12% x 1/12) 20,000
Cash 1,880,000

April1 Trading securities (4M x 95%) 3,800,000

Interest income (4M x 12% x 1/12) 40,000
Cash 3,840,000

Aug. 1 Cash (2M x 12% x 6/12) 120,000

Interest income 120,000

Sept. 1 Cash (4M x 12% x 6/12) 240,000

Interest income 240,000

Oct. 1 Cash (1.05M + 10,000) 1,060,000

Interest income (1M x 12% x 1/12) 10,000
Trading securities 950,000
Gain on sale of trading securities 100,000

Sales price (1M x 105%) 1,050,000

Less: Cost of bonds sold (1,000/4,000 x 3.8M) 950,000
Gain on sale 100,000

Dec. 1 Cash (2M + 80,000) 2,080,000

Interest income (2M x 12% x 4/12) 80,000
Trading securities 1,860,000
Gain on sale of trading securities 140,000

Sales price (2M x 100%) 2,000,000

Less: Cost of bonds sold 1,860,000
Gain on sale 140,000

Dec. 31 Accrued interest receivable (3M x 12% x 4/12) 120,000

Interest income 120,000

Unrealized loss - trading securities (2.85M - 2.7M) 150,000

Trading securities 150,000

Requirement b
Current assets:
Trading securities, at fair value (3M x 90) 2,700,000
Problem 18-7
2013
July 1 Trading securities 2,200,000
Commission expense 50,000
Interest income (2M x 4%) 80,000
Cash 2,330,000

Dec. 31 Unrealized loss - trading securities 300,000

Trading securities 300,000

Market value (2M x 95) 1,900,000

Carrying amount 2,200,000
Unrealized loss (300,000)

Cash (2M x 8%) 160,000

Interest income 160,000

2014
Oct. 1 Cash 2,140,000
Interest income (2M x 8 x 3/12) 40,000
Trading securities 1,900,000
Gain on sale of trading securities 200,000
Problem 18-8
2013
April 1 Trading securities 2,200,000
Cash 2,200,000

Oct. 1 Cash (2M x 12% x 6/12) 120,000

Interest income 120,000

Dec. 31 Accrued interest receivable 60,000

Interest income (2M x 12% x 3/12) 60,000

Trading securities 100,000

Unrealized gain - trading securities 100,000

2014
Jan.1 Interest income 60,000
Accrued interest receivable 60,000

Apr. 1 Cash 120,000

Interest income 120,000

Oct. 1 Cash 120,000

Interest income 120,000

Dec. 31 Accrued interest receivable 60,000

Interest income 60,000

Unrealized loss - trading securities 340,000

Trading securities 340,000
Problem 18-10
Requirement 1
Date Interest Interest Discount Carrying
received income amortization amount
01/01/2013 4,742,000
12/31/2013 300,000 379,360 79,360 4,821,360
12/31/2014 300,000 385,709 85,709 4,907,069
12/31/2015 300,000 392,931 92,931 5,000,000

Requirement 2
2013
Jan. 1 Investment in bonds 4,742,000
Cash 4,742,000

Dec. 31 Cash 300,000

Interest income 300,000

Investment in bonds 79,360

Interest income 79,360

2014
Dec. 31 Cash 300,000
Interest income 300,000

Investment in bonds 85,709

Interest income 85,709

Cash 5,500,000
Investment in bonds 4,907,069
Gain on sale of bond investment 592,931

Sales price 5,500,000

Carrying amount - 12/31/2014 4,907,069
Gain on sale 592,931
Problem 18-11
Requirement a
2013
Feb. 1 Investment in bonds 5,486,000
Cash 5,486,000

Dec. 31 Accrued interest receivable 660,000

Interest income 660,000
(6M x 12% x 11/12)
Investment in bonds 94,235
Interest income 94,235
(102,900 x 11/12)

Date Interest Interest Discount Carrying

received income amortization amount
02/01/2013 5,486,000
02/01/2014 720,000 822,900 102,900 5,588,900
2/1/2015 720,000 838,335 118,335 5,707,235

Requirement b
2014
May 1 Investment in bonds 29,584
Interest income 29,584
(118,335 x 3/12)
Cash (6.3M + 180,000) 6,480,000
Investment in bonds 5,618,484
Interest income (6M x 12% x 3/12) 180,000
Gain on sale of bonds 681,516

Carrying amount - 2/1/2014 (see table) 5,588,900

Add: Discount amortization from 2/1/2014 -
5/1/2014 (3/12 x 118,335) 29,584
Carrying amount - 5/1/2014 5,618,484

Selling price (6M x 105%) 6,300,000

Less: carrying amount 5,618,484
Gain on sale 681,516
Problem 18-12

2013
Jan. 1 Investment in bonds 8,598,400
Cash 8,598,400

Dec. 31 Cash (12% x 8M) 960,000

Interest income 960,000

Interest income 100,160

Investment in bonds 100,160

Interest received 960,000

Interest income (10% x 8,598,400) 859,840
Premium amortization 100,160
Problem 18-14

2013
Jan. 1 Investment in bonds 3,844,800
Cash 3,844,800

Dec. 31 Cash (12% x 4M) 480,000

Interest income 480,000

Investment in bonds 58,272

Interest income 58,272

Interest received 538,272

Interest income (14% x 3,844,800) 480,000
Discount amortization 58,272

Cash 1,000,000
Investment in bonds 1,000,000

2014
Dec. 31 Cash (12% x 3M) 360,000
Interest income 360,000

Investment in bonds 46,430

Interest income 46,430

Interest received 406,430

Interest income (14% x 2,903,072) 360,000
Discount amortization 46,430

Cash 1,000,000
Investment in bonds 1,000,000
Problem 18-16
Interest Interest Discount Carrying
Date received Income Amortization Amount
01/01/2013 3,757,015
12/31/2013 400,000 450,842 50,842 3,807,857
12/31/2014 400,000 456,943 56,943 3,864,800
12/31/2015 400,000 463,776 63,776 3,928,576
12/31/2016 400,000 471,424 71,424 4,000,000

2013
Jan 1 Investment in bonds 3,757,015
Cash 3,757,015

Dec 31 Cash 400,000

Interest income 400,000

Investment in bonds 50,842

Interest income 50,842
Problem 18-17
Interest Interest Premium Carrying
Date received Income Amortization Amount
01/01/2013 3,111,510
12/31/2013 120,000 93,345 26,655 3,084,855
12/31/2014 120,000 92,546 27,454 3,057,401
12/31/2015 120,000 91,722 28,278 3,029,123
12/31/2016 120,000 90,877 29,123 3,000,000

2013
Jan 1 Investment in bonds 3,111,510
Cash 3,111,510

June 30 Cash 120,000

Interest income 120,000

Interest income 26,655

Investment in bonds 26,655

Dec. 31 Cash 120,000

Interest income 120,000

Interest income 27,454

Investment in bonds 27,454
Problem 18-18

1. Journal entries
a. Investment in bonds 7,679,000
Cash 7,679,000

b. Cash (10% x 8M) 800,000

Interest income 800,000

c. Investment in bonds 121,480

Interest income 121,480

Interest received (8M x 10%) 921,480

Interest income (12% x 7,679,000) 800,000
Discount amortization 121,480

Cash 2,000,000
Investment in bonds 2,000,000

2. Cost 7,679,000
Discount amortization 121,480
Annual installment (2,000,000)
Carrying amount - 12/31/2013 5,800,480
Problem 18-20

1. Annual nominal interest (4M x 16%) 640,000

Annual effective interest (4M x 12%) 480,000
Difference 160,000
Multiply by present value factor 3.605
Premium 576,800
Face value 4,000,000
Purchase price 4,576,800

2. Interest Interest Premium Carrying

Date received Income Amortization Amount
Jan. 01, 2013 4,576,800
Dec. 31, 2013 640,000 549,216 90,784 4,486,016
Dec. 31, 2014 640,000 538,322 101,678 4,384,338
Dec. 31, 2015 640,000 526,121 113,879 4,270,459
Dec. 31, 2016 640,000 512,455 127,545 4,142,914
Dec. 31, 2017 640,000 497,086 142,914 4,000,000

3. Investment in bonds 4,576,800

Cash 4,576,800

Cash 640,000
Interest income 640,000

Interest income 90,784

Investment in bonds 90,784
Problem 18-22
1.
Principal payment 1,000,000
Interest payment (3M x 12%) 360,000
Total payment on Dec. 31, 2013 1,360,000

Principal payment 1,000,000

Interest payment (2M x 12%) 240,000
Total payment on Dec. 31, 2014 1,240,000

Principal payment 1,000,000

Interest payment (1M x 12%) 120,000
Total payment on Dec. 31, 2015 1,120,000

December 31, 2013 payment (1.36M x .91) 1,237,600

December 31, 2014 payment (1.24M x .83) 1,029,200
December 31, 2015 payment (1.12M x .75) 840,000
Total present value on January 1, 2013 3,106,800

2. Journal entries
2013
Jan. 1 Investment in bonds 3,106,800
Cash 3,106,800

Dec. 31 Cash 360,000

Interest income 360,000

Interest income 49,320

Investment in bonds 49,320

Interest received 360,000

Interest income (3,106,800 x 10%) 310,680
Premium amortization 49,320

Cash 1,000,000
Investment in bonds 1,000,000

3. Acquisition cost - 1/1/2013 3,106,800

Premium amortization for 2013 (49,320)
Annual installment (1,000,000)
Carrying amount of investment - 12/31/2013 2,057,480
Problem 18-24
2013
Jan. 1 Financial asset at fair value 5,380,000
Cash 5,380,000

Dec. 31 Cash (12% x 5M) 600,000

Interest income 600,000

Financial asset at fair value 620,000

Gain from change in fair value 620,000
(6M - 5.38M)

2014
Dec. 31 Cash 600,000
Interest income 600,000

Loss from change in fair value 250,000

Financial asset at fair value 250,000
(6M - 5.75M)