Solution manual financial accounting by valix ch11 15

139
CHAPTER 11
Problem 11-1
Problem 11-4
1.
2.
3.
4.
5.

A
C
C
A
D

6.
7.
8.
9.
10.

A
C
A
D
B

Problem 11-2
1.
2.

3.
4.
5.

B
D
B
A
C

1.
2.
3.
4.

Problem 11-3
D
D
C
A
5. C

1.
2.
3.
4.
5.

B
C

D
A
A

Problem 11-5
Equity method
1. Investment in associate
Cash

2,400,000
2,400,000

Acquisition cost
Net assets acquired (20% x 8,000,000)
Goodwill
2. Investment in associate
Investment income (20% x 1,500,000)
300,000

2,400,000
1,600,000
800,000
300,000

3. Memo – Received 2,000 shares as 10% stock dividend on
20,000 original shares. Shares now held, 22,000.
4. Investment loss
Investment in associate (20% x 300,000)
5. Cash (20% x 500,000)
Investment in associate

60,000
60,000
100,000

6. Cash (5,500 x 200)
Investment in associate
Gain on sale of investment

100,000

1,100,000
635,000
465,000

Sales price
Less: Cost of investment sold (5,500/22,000 x 2,540,000)
635,000
Gain on sale

1,100,000
465,000

Cost method
1. Investment in equity securities
Cash
2. No entry

2,400,000
2,400,000

140
3. Memo – Received 2,000 shares as 10% stock dividend.
Shares now held, 22,000.
4. No entry
5. Cash

100,000
Dividend income

100,000

1,100,000
Investment in equity securities (5,500/22,000 x 2,400,000)
600,000
Gain on sale of investment

500,000

6. Cash

Problem 11-6
1. Investment in equity securities
Cash
2. Cash (15% x 4,000,000)
Dividend income (15% x 3,000,000)
450,000
Investment in equity securities (15% x 1,000,000)
150,000

6,000,000
6,000,000
600,000

Problem 11-7
2008

Investment in associate
Cash
Investment in associate
Investment income (30% x 4,000,000 x 3/12)
300,000
Cash (30% x 3,000,000)
Investment in associate
900,000

50,000
2009

Investment income
Investment in associate (200,000 x 3/12)
Investment in associate
Investment income (30% x 6,000,000)
Cash (30% x 5,000,000)
Investment in associate

5,000,000
5,000,000
300,000

900,000

50,000

1,800,000
1,800,000
1,500,000
1,500,000


Investment income
Investment in associate

200,000
200,000

141
Problem 11-8
2006
Jan. 1 Investment in equity securities
Cash
Dec. 31 Cash (15% x 300,000)
Dividend income

1,000,000
45,000

45,000

2007
Dec. 31 Cash (15% x 400,000)
Dividend income

60,000

2008
Jan. 1 Investment in associate
Cash

3,000,000

1 Investment in associate
Retained earnings

1,000,000

60,000

3,000,000
75,000

75,000

Investment income – Equity method (2006 and 2007)
180,000
(15% x 500,000 + 700,000)
Dividend income – Cost method (2006 and 2007) (45,000 + 60,000) 105,000
Cumulative effect of change to equity
75,000

1 Investment in associate
Investment in equity securities
1,000,000
(Reclassification)
Dec. 31 Investment in associate
Investment income (40% x 900,000)
360,000
31 Cash (40% x 600,000)
Investment in associate
240,000

1,000,000

360,000

240,000

Problem 11-9
2008
Jan. 1

Investment in associate
Cash

8,000,000

Dec. 31 Investment in associate

1,500,000

8,000,000


Investment income (30% x 5,000,000)
1,500,000
31 Cash (30% x 2,000,000)
Investment in associate
600,000

600,000

142
2009
June 30 Investment in associate
Investment income (30% x 6,000,000)
1,800,000
July

1 Cash

5,350,000

1,800,000

6,000,000
Investment in associate (10,700,000 x 1/2)
Gain on sale of investment

Oct.

1 Cash (2,500,000 x 15%)
Dividend income
1

Dec. 31

650,000
375,000

Available for sale securities
Investment in associate
(Reclassification)

375,000
5,350,000
5,350,000

No entry is required for the share in net income
because the investor is now using the fair value
method by reason on the reduced 15% interest.

Problem 11-10
Requirement a
1. Investment in associate
Cash

3,500,000
3,500,000

2. Investment in associate

Investment income (40% x 4,000,000)
1,600,000

1,600,000

3. Cash (40% x 1,000,000)
Investment in associate
400,000

400,000

4. Investment income
Investment in associate (600,000 / 4)
150,000
Cost
Book value of interest acquired (40% x 7,000,000)
2,800,000

150,000

3,500,000


Excess of cost over book value
Excess attributable to equipment (40% x 1,500,000)
Excess attributable to inventory (40% x 500,000)
( 200,000)
Excess net fair value over cost
5. Investment income
Investment in associate

200,000
6. Investment in associate
Investment income

(

700,000
600,000)

(

100,000)

200,000

100,000
100,000

143
Requirement b
Share in net income
Amortization of excess attributable to equipment
Amortization of excess attributable to inventory
Excess net fair value over cost
Net investment income

1,600,000
( 150,000)
( 200,000)
100,000

1,350,000

Problem 11-11
1. Investment in associate
Cash
2. Investment in associate
Investment income (40% x 650,000)
3. Cash (40% x 150,000)
Investment in associate
60,000
4. Investment in associate
Revaluation surplus – investee (40% x 1,300,000)

1,700,000
1,700,000
260,000

260,000

60,000

520,000
520,000

Note:
1. Cost
Interest acquired (40% x 4,000,000)
1,600,000
Goodwill – not amortized

1,700,000
100,000

2. There is no need to adjust for the difference in depreciation method. If both entities
a method that best reflects the flow of benefits as the assets are consumed, then
there is no policy difference.

Problem 11-12
1. Journal entries


a. Investment in associate
Cash

6,000,000
6,000,000

b. Investment in associate
Investment income

750,000
750,000

c. Cash
Investment in associate

450,000

d. Investment income
Investment in associate

200,000

450,000
200,000

144
2. Share in net income
Amortization of patent (2,000,000 / 10)
Investment income
550,000

750,000
(200,000)

3. Acquisition cost
Share in net income (5,000,000 x 15%)
Share in cash dividend (3,000,000 x 15%)
( 450,000)
Amortization of patent (2,000,000 / 10)

6,000,000
750,000
(

Carrying value

200,000)

6,100,000

Interest acquired (30,000 / 200,000)
15%
Acquisition cost
Book value of net assets acquired
4,000,000
Excess of cost applicable to patent

6,000,000
2,000,000

Problem 11-13
1. Journal entries
a. Investment in associate
Cash

5,000,000
5,000,000

b. Investment in associate
Investment income

1,200,000
1,200,000

c. Cash
Investment in associate

300,000

d. Investment income
Investment in associate

150,000

2. Share in net income

300,000
150,000
1,200,000


Amortization of depreciable asset (750,000 / 5)
( 150,000)
Investment income
1,050,000
3. Acquisition cost
Share in net income (30% x 4,000,000)
Share in cash dividend (30% x 1,000,000)
( 300,000)
Amortization of depreciable asset (750,000 / 5)

5,000,000
1,200,000
(

150,000)

Carrying value of investment

5,750,000

Acquisition cost
Net assets acquired (30% x 12,000,000)
Excess of cost
Excess attributable to depreciable asset (30% x 2,500,000)
Excess attributable to goodwill

5,000,000
3,600,000
1,400,000
750,000
650,000

145
Problem 11-14
1. Journal entries
a. Investment in associate
Cash

1,000,000
1,000,000

b. Investment in associate
Investment income

175,000
175,000

c. Cash

Investment in associate

75,000

d. Investment income
Investment in associate

50,000

2. Share in net income
Amortization of excess (25,000 + 25,000)
( 50,000)
Investment income
125,000
3. Acquisition cost
Net assets acquired (25% x 3,000,000)
Excess of cost
Excess attributable to inventory (25% x 100,000)
25,000
Excess attributable to equipment (25% x 500,000)
125,000

75,000
50,000
175,000

1,000,000
750,000
250,000

Excess attributable to goodwill (25% x 400,000)
100,000

250,000

Acquisition cost
Share in net income (25% x 700,000)
Amortization of excess:
Inventory
Equipment (125,000 / 5)
Cash dividend (25,000 x 3)
( 75,000)
Investment balance

1,000,000
175,000
(
(

25,000)
25,000)

1,050,000

Problem 11-15
1. Share in 2008 net income
900,000
Amortization of excess (400,000 / 20)
Investment income for 2008

( 20,000)
880,000

Acquisition cost (20,000 x 120)
Net assets acquired (25% x 8,000,000)
Excess of cost

2,400,000
2,000,000
400,000

146
2. Share in 2008 net income
975,000
Amortization of excess
Investment income for 2009
3. Acquisition cost
Share in net income:
2008 (25% x 3,600,000)
900,000
2009 (25% x 3,900,000)
975,000
Share in cash dividend:
2008 (20,000 x 16)
2009 (20,000 x 20)
Amortization of excess:
2008 (400,000 / 20)
2009
Investment balance – 12/31/2009

3,515,000

Problem 11-16
Requirement a

1. Memo – Received 500 shares as 10% stock dividend on
5,000 original Dale ordinary shares. Shares now
held, 5,500.

( 20,000)
955,000
2,400,000

( 320,000)
( 400,000)
(
(

20,000)
20,000)


2. Cash (5,500 x 20)
Dividend income
3. Stock rights (15/150 x 1,600,000)
Investment in equity securities – Ever
160,000
Cash

Stock rights

Gain on sale of stock rights

4. Investment in associate
Cash

110,000

160,000

200,000

5,000,000
1/1/2007

Acquisition cost
5,000,000
Net assets acquired:
10% x 16,000,000
20% x 20,000,000
Goodwill

110,000

1,600,000
________
400,000

Income from Fox investment in 2007 (10% x 4,000,000)
400,000
Less: Dividend income recorded in 2007 – cost method

-___
Understatement of income

160,000
40,000
5,000,000
1/1/2008
2,000,000

4,000,000
1,000,000

400,000

147
5. Investment in associate
Investment in equity securities
2,000,000
(Reclassification)

2,000,000

6. Investment in associate
Retained earnings

400,000

7. Investment in associate
Investment income (30% x 6,000,000)
1,800,000

8. Cash (75,000 x 20)
Investment in associate

400,000
1,800,000

1,500,000
1,500,000

Requirement b
Noncurrent assets:
Investment in equity securities (Note)
Investment in associate – Fox Corporation

2,690,000
7,700,000


Note – Investment in equity securities
Dale Corporation, 5,500 shares
Ever Corporation, 10,000 shares
Total cost

1,250,000
1,440,000
2,690,000

Problem 11-17 Answer D
Problem 11-18 Answer D
Problem 11-19 Answer B

Investment in Lax Corporation

3,000,000

Problem 11-20 Answer C
Total cash dividend
Cumulative net income
Liquidating dividend
Cash (10% x 3,000,000)
Dividend income (10% x 2,500,000)
Investment in equity securities

3,000,000
2,500,000
500,000
300,000
250,000
50,000

Problem 11-21 Answer B
Investment income (20% x 1,600,000)
320,000

148
Problem 11-22 Answer A
Investment income (20% x 6,000,000)
1,200,000

Problem 11-23 Answer C
Interest (30,000/100,000)

30%

Investment income (5,000,000 x 6/12 x 30%)
750,000

Problem 11-24 Answer C
Cost
Less: Net assets acquired (40% x 8,000,000)
3,200,000
Excess of cost or goodwill

4,000,000
800,000


Share in net income from April 1 to December 31 (1,000,000 x 9/12 x 40%)
300,000

Problem 11-25 Answer B
Acquisition cost
Share in net income (20% x 1,800,000)
Share in cash dividend (20% x 600,000)
( 120,000)
Amortization of excess (1,000,000/10)
( 100,000)
Carrying value
7,140,000

7,000,000

360,000

Problem 11-26 Answer A
Acquisition cost
Share in net income (10% x 5,000,000)
Share in cash dividend (10% x 1,500,000)
( 150,000)
Carrying value
4,350,000

4,000,000
500,000

Problem 11-27 Answer D
Acquisition cost (squeeze)
Share in net income (25% x 1,200,000)
Share in cash dividend (25% x 480,000)
( 120,000)
Carrying value – December 31

1,720,000
300,000
1,900,000

Problem 11-28 Answer D
Acquisition cost
Less: Book value of net assets acquired (30% x 5,000,000)
1,500,000
Excess of cost over book value
Less: Amount attributable to undervaluation of land (30% x 2,000,000)

Goodwill

2,500,000
1,000,000
600,000
400,000

149
Acquisition cost
Add: Share in net income (30% x 1,000,000)
300,000
Balance, December 31

2,500,000
2,800,000

The excess of cost attributable to the land is not amortized because the land is
nondepreciable. The goodwill is not amortized.

Problem 11-29 Answer B
Acquisition cost – January 1

1,000,000


Acquisition cost – December 31
Total cost
Share in net income (10% x 8,000,000)
Carrying value
4,800,000

3,000,000
4,000,000
800,000

Problem 11-30 Answer C
Investment income in 2008 (30% x 6,500,000)
1,950,000
Investment income in 2007 (10% x 6,000,000)
600,000
Less: Dividend income recorded in 2006 (10% x 2,000,000)
200,000
Understatement of income
Investment in associate
Retained earnings

400,000
400,000
400,000

Problem 11-31 Answer A
Acquisition cost
Net assets acquired (30% x 11,800,000)
Excess of cost
Attributable to depreciable assets (30% x 2,600,000)
780,000
Attributable to goodwill

5,160,000
3,540,000

1,620,000

Acquisition cost
Share in net income (30% x 3,600,000)
Share in dividends (30% x 400,000)
( 120,000)
Amortization (780,000/4)
( 195,000)
Investment balance – December 31

5,160,000
1,080,000

840,000

5,925,000

Problem 11-32 Answer B
Acquisition cost
Net assets acquired (40% x 5,000,000)
2,000,000
Excess of cost

2,560,000
560,000

150
Attributable to equipment (40% x 800,000)
320,000
Attributable to building (40% x 600,000)

Acquisition cost

240,000
560,000
2,560,000


Net income (40% x 1,600,000)
640,000
Cash dividend (40% x 1,000,000)
Amortization of excess:
Equipment (320,000 / 4)
Building (240,000 / 12)
Carrying value of investment – 12/31/2008

( 400,000)
(
(

80,000)
20,000)
2,700,000

Problem 11-33 Answer A
Net income
Less: Preference dividend (10% x 2,000,000)
200,000
Net income to ordinary shares

5,000,000

4,800,000

Investment income (50% x 4,800,000)
2,400,000

Problem 11-34
Question 1 – Answer B
Share in 2008 net income (30% x 800,000)
240,000
Question 2 – Answer B
Acquisition cost
Share in net income – 2008
Cash dividends – 2008 (30% x 500,000)
Book value – December 31, 2008

2,000,000
240,000
( 150,000)
2,090,000

Question 3 – Answer B
Book value – December 31, 2008
Share in net income up to June 30, 2009 (30% x 1,000,000)
300,000
Book value – June 30, 2009
Sales price
Book value sold (2,390,000 x ½)
Gain on sale

2,090,000

2,390,000
1,500,000
1,195,000
305,000

151
Problem 11-35 Answer C


Acquisition cost (30,000 x 120)
3,600,000
Deficit on January 1, 2008 (30% x 500,000)
( 150,000)
Carrying value of investment – 1/1/2008
Net income for 2008 (30% x 700,000)
210,000
Net income for 2009 (30% x 800,000)
240,000
Cash dividend on 12/31/2009 (30% x 400,000)
Carrying value of investment – 12/31/2009

3,450,000

( 120,000)
3,780,000

Another approach
Acquisition cost
Share in retained earnings – 12/31/2009 (30% x 600,000)
180,000

Carrying value of investment – 12/31/2009

CHAPTER 12

3,600,000
3,780,000

152


Problem 12-1
1.
2.
3.
4.
5.

B
B
A
A
D

6. C
7. C
8. B
9. B
10. C

Problem 12-2

Bonds held as trading
2008
April 1 Trading securities
Cash
Oct. 1 Cash (2,000,000 x 12% x 6/12)
Interest income
120,000

2,200,000
120,000

Dec. 31 Accrued interest receivable
Interest income (2,000,000 x 12% x 3/12)
31 Trading securities
Unrealized gain – TS
2009
Jan. 1 Interest income
Accrued interest receivable
April 1 Cash

2,200,000

60,000
60,000
100,000

60,000

100,000

60,000

120,000

Interest income
120,000
Oct. 1 Cash

120,000

Interest income
120,000
Dec. 31 Accrued interest receivable
Interest income
60,000
31 Unrealized loss – TS
Trading securities (2,300,000 – 1,960,000)
Bonds held to maturity
2008
April 1 Held to maturity securities
Cash
Oct. 1 Cash
Interest income
120,000

60,000

340,000
340,000

2,200,000
2,200,000
120,000


153
2008
Dec. 31 Accrued interest receivable
Interest income
60,000
31 Interest income (50,000 x 9/12)
Held to maturity securities
2009
Jan. 1 Interest income
Accrued interest receivable
April 1 Cash

60,000

37,500

37,500

60,000

60,000

120,000

Interest income

120,000
Oct. 1 Cash

120,000

Interest income
120,000
Dec. 31 Accrued interest receivable
Interest income
60,000

60,000

31 Interest income (200,000/4)
Held to maturity securities

50,000
50,000

Problem 12-3
Bonds held as trading
Jan. 1 Trading securities
Cash
July

1 Cash

3,761,000
3,761,000

Interest income (4,000,000 x 12%)

Dec. 31 Accrued interest receivable
Interest income
240,000
31 Trading securities
Unrealized gain – TS (4,200,000 – 3,761,000)
439,000

240,000

240,000

240,000

439,000

Bonds held as available for sale
Jan. 1 Available for sale securities
Cash

3,761,000
3,761,000


July

1 Cash

240,000

Interest income
240,000

154
July

1 Available for sale securities
Interest income
23,270

23,270

Interest income (3,761,000 x 7%)
Interest received
Amortization of discount

263,270
240,000
23,270

Dec. 31 Accrued interest receivable
Interest income
240,000

240,000

31 Available for sale securities
Interest income
24,899

24,899

Interest income (3,784,270 x 7%)
Interest accrued
Amortization of discount
31 Available for sale securities
Unrealized gain – AFS

264,899
240,000
24,899
390,831
390,831

Market value (4,000,000 x 105)
4,200,000
Book value
Unrealized gain

3,809,169
390,831

Problem 12-4
Aug. 1 Trading securities (5,000,000 x 104)
Interest income (5,000,000 x 12% x 3/12)
Cash

5,200,000
150,000

5,350,000

31 Trading securities (2,000,000 x 98)
Interest income (2,000,000 x 12% x 2/12)
Cash

1,960,000
40,000
2,000,000

Nov. 1 Cash (5,000,000 x 12% x 6/12)
Interest income
300,000
Dec. 1 Cash (1,880,000 + 20,000)
Loss on sale of trading securities
Trading securities

300,000

1,900,000
200,000
2,080,000


Interest income (2,000,000 x 12% x 1/12)

20,000

Selling price (2,040,000 – 160,000)
1,880,000

Less: Cost of bonds sold (2,000/5,000 x 5,200,000)
2,080,000
Loss on sale
( 200,000)

155
Dec. 31 Cash (2,000,000 x 12% x 6/12)
Interest income
120,000

120,000

31 Accrued interest receivable (3,000,000 x 12% x 2/12)
Interest income
60,000
31 Unrealized loss – TS
Trading securities

60,000

160,000
160,000
Carrying amount

Acme bonds (3,000,000 x 98%)
2,940,000
Avco bonds (2,000,000 x 99%)
1,980,000

Market

3,120,000
1,960,000
5,080,000

4,920,000
Current assets:
Trading securities, at market value

4,920,000

Problem 12-5
Requirement a
March 1 Trading securities (2,000,000 x 93%)
Interest income (2,000,000 x 12% x 1/12)
Cash
April

Aug.

1 Trading securities (4,000,000 x 95%)
Interest income (4,000,000 x 12% x 1/12)
Cash

1,860,000
20,000
1,880,000
3,800,000
40,000
3,840,000

1 Cash (2,000,000 x 12% x 6/12)
Interest income

120,000

Sept. 1 Cash (4,000,000 x 12% x 6/12)
Interest income

240,000

120,000
240,000


Oct. 1 Cash (1,010,000 + 10,000)
Interest income (1,000,000 x 12% x 1/12)
10,000
Trading securities
950,000
Gain on sale of trading securities

1,020,000

60,000

Sales price (1,000,000 x 105%)
Less: Brokerage
Net proceeds
Less: Cost of bonds sold (1,000/4,000 x 3,800,000)
950,000

1,050,000
40,000
1,010,000

Gain on sale

60,000

156
Dec. 1 Cash (1,940,000 + 80,000)
Trading securities
1,860,000
Interest income (2,000,000 x 12% x 4/12)
80,000
Gain on sale of trading securities
80,000

80,000

2,020,000

Sales price (2,000,000 x 100%)
Less: Brokerage
Net proceeds
Less: Cost of bonds sold
Gain on sale

2,000,000
60,000

1,940,000
1,860,000

31 Accrued interest receivable (3,000,000 x 12% x 4/12) 120,000
Interest income
120,000
31 Unrealized loss – TS (2,850,000 – 2,700,000)
Trading securities
150,000
Requirement b
Current assets:
Trading securities, at market value (3,000,000 x 90)

150,000

2,700,000

Problem 12-6
2008
July 1 Trading securities
Commission expense

2,200,000
50,000


Interest income (2,000,000 x 4%)
Cash

80,000

2,330,000

Dec. 31 Unrealized loss – TS
Trading securities
300,000
Market value (2,000,000 x 95)
Carrying amount
Unrealized loss

300,000
1,900,000
2,200,000
300,000

31 Cash (2,000,000) x 8%)
Interest income
160,000

160,000

2009
March 31 Cash
Trading securities
Gain on sale of TS
Interest income (2,000,000 x 8%) x 3/12)

2,140,000

1,900,000
200,000

40,000

157
Problem 12-7
Requirement 1
Date
Book value
01/01/2008
12/31/2008
12/31/2009
12/31/2010

Interest received

Interest income

160,000
160,000
160,000

190,050
193,055
196,395

Discount
amortization
30,050
33,055
36,395

1,900,500
1,930,550
1,963,605
2,000,000

Requirement 2
2008
Jan. 1 Available for sale securities
Cash
Dec. 31 Cash
Interest income
160,000
31 Available for sale securities
Interest income
30,050
31 Available for sale securities
Unrealized gain – AFS
Market value (2,000,000 x 110)

1,900,500
1,900,500
160,000

30,050

269,450
269,450
2,200,000

Carrying amount
Unrealized gain

1,930,550
269,450

2009
Dec. 31 Cash
Interest income
160,000

160,000

31 Available for sale securities
Interest income
33,050

33,055

31 Available for sale securities
Unrealized gain
166,945

166,945

Market value 12/31/2009 (2,000,000 x 120)
2,400,000
Book value per table – 12/31/2009
1,963,605
Cumulative unrealized gain – 12/31/2009

Unrealized gain – 12/31/2008
Increase in 2009

436,395
269,450
166,945

158
Problem 12-8
Requirement 1
Date
Book value
01/01/2008
12/31/2008
12/31/2009
12/31/2010

Interest received
300,000
300,000
300,000

Interest income
379,360
385,709
392,931

Discount
amortization
79,360

85,709
92,931

4,742,000
4,821,360
4,907,069
5,000,000

Requirement 2
2008
Jan. 1 Available for sale securities
Cash
Dec. 31 Cash
Interest income
300,000

4,742,000
4,742,000
300,000

31 Available for sale securities
Interest income
79,360

79,360

31 Available for sale securities

428,640

Unrealized gain – AFS

428,640

Market value - 12/31/2008 (5,000,000 x 105)
5,250,000
Book value – 12/31/2008
Unrealized gain – 12/31/2008
2009
Dec. 31 Cash
Interest income
300,000

4,821,360
428,640
300,000

31 Available for sale securities
Interest income
85,709
31 Cash
Unrealized gain - AFS
Available for sale securities
Gain on sale of AFS

85,709

5,500,000
428,640

5,335,709
592,931

Sales price (5,000,000 x 110)
5,250,000
Unrealized gain
Total
Investment balance – 12/31/2009
Unrealized gain – 12/31/2009

428,640
5,928,640
5,335,709
592,931

159
Another computation
Sales price
Book value per table – 12/31/2009
4,907,069
Gain on sale

5,250,000
592,931

Problem 12-9
Requirement a
2008
May 1 Held to maturity securities (6,000,000 x 94%)
Interest income (6,000,000 x 12% x 3/12)

Cash
Aug. 1 Cash

5,640,000
180,000
5,820,000
360,000

Interest income (6,000,000 x 12% x 6/12)
Dec. 31 Accrued interest receivable
Interest income (6,000,000 x 12% x 5/12)

360,000
300,000

300,000


31 Held to maturity securities (8,000 x 8)
Interest income
64,000

64,000

May 1, 2008 – February 1, 2012 = 45 months
360,000 / 45 = 8,000 monthly amortization

Requirement b
2010
May 1 Held to maturity securities (8,000 x 4)

Interest income
32,000
1 Cash (6,300,000 + 180,000)
Held to maturity securities
Interest income (6,000,000 x 12% x 3/12)
180,000
Gain on sale of bonds

32,000

6,480,000
5,832,000
468,000

Original cost – May 1, 2008
5,640,000
Add: Discount amortization from May 1, 2008 to
May 1, 2010 (8,000 x 24 months)
Book value, May 1, 2010

192,000
5,832,000

Selling price (6,000,000 x 105%)
Less: Book value
Gain on sale

6,300,000
5,832,000
468,000

160
Problem 12-10
1. Held to maturity securities
Cash

8,598,400
8,598,400

2. Cash (12% x 8,000,000)
Interest income

960,000

3. Interest income
Held to maturity securities

100,160

Interest received
Interest income (10% x 8,598,400)
859,840
Premium amortization

960,000
100,160
960,000
100,160

Problem 12-11
Year
amortization

Bond outstanding

2008
2009
2010
2011
2012

1,000,000
800,000
600,000
400,000
200,000
3,000,000

2008
Jan. 1 Held to maturity securities
Cash

Fraction

Premium

10/30
6/30
4/30

2/30

50,000
8/30

30,000
20,000
10,000
150,000

1,000,000
1,000,000

June 30 Cash (100,000 x 12% x 6/12)
Interest income
Dec. 31
31

Cash
Interest income
Interest income
Held to maturity securities

31

Cash
Held to maturity securities

40,000

60,000
60,000
60,000

60,000

50,000
50,000
200,000
200,000

161
2009
June 30 Cash (800,000 x 12% x 6/12)
Interest income
48,000
Dec. 31 Cash

48,000

48,000

Interest income

48,000
31 Interest income
Held to maturity securities
31 Cash
Held to maturity securities

40,000

40,000

200,000
200,000


Problem 12-12
Year
amortization
2008
2009
2010
2011

Bond outstanding
4,000,000
3,000,000
2,000,000
1,000,000
10,000,000

Fraction

4/10
3/10
2/10
1/10

Discount
120,000
90,000
60,000
30,000
300,000

2010
Dec. 31 Cash

240,000

Interest income
240,000
31 Held to maturity securities
Interest income
60,000
31 Cash

60,000

1,000,000
1,000,000

Held to maturity securities

2011
Dec. 31 Cash

120,000

Interest income
120,000

31 Held to maturity securities
Interest income
30,000
31 Cash

30,000

1,000,000
1,000,000

Held to maturity securities

162
Problem 12-13
Bond
Months
Bond year
outstanding
amortization
10/01/2008 – 02/01/2009 3,000,000
75,000
02/01/2009 - 02/01/2010 2,000,000
150,000
02/01/2010 – 02/01/2011 1,000,000
75,000

Peso
outstanding

months

Discount
Fraction

4

12,000,000

12/48

12

24,000,000

24/48

12

12,000,000

12/48

48,000,000

300,000