50.1K

Verified Solution

Link Copied!

2 4. Djoko Software Group acquired $1,300,000 par value, zero coupon, five-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue was 8% and interest is compounded annually. Djoko uses the effective interest rate method to account for this investment. The company classifies the investment as a trading security. The fair value of the bonds at the end of the year of acquisition is $821,000. Read the requirements? (Click the icon to view the Future Value of 3 $1 table.) (Click the icon to view the Future Value of 5 an Ordinary Annuity table.) (Click the icon to view the Future Value of 7 an Annuity Due table.) (Click the icon to view the Present Value of $1 table.) (Click the icon to view the Present Value of an Ordinary Annuity table.) (Click the icon to view the Present Value of an Annuity Due table.) 6 Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round intermediary currency computations and your final answers to the nearest whole dollar.) The purchase price of the bonds is $ Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries. Enter amounts to the nearest whole dollar.) Acquisition Account (1) (2) (3) Requirement c. Prepare an amortization table assuming that Djoko uses the effective interest rate method. (Complete all answer boxes. Enter a "0" for any zero balances. Round all amounts you enter into the amortization table to the nearest whole dollar and enter all amounts as positive numbers. Enter all amounts into the table as calculated using the instructed rounding. Note that rounding differences may occur. Do not "plug" effective interest and/or discount amortization amounts to adjust for any rounding differences.) Cash Effective Discount Amortized Period Interest Interest Amortization Cost 0 1 2 3 4 5 Requirement d. Prepare the journal entry to record the interest income for the first two years. (Record debits first, then credits. Exclude explanations from any journal entries. Enter amounts to the nearest whole dollar.) Begin by preparing the journal entry to record interest income for the first year. December 31, Year 1 Account (5) (6) (7) (8) Now prepare the journal entry to record interest income for the second year. December 31, Year 2 Account (9) (10) |(11) (12) Requirement e. Prepare the journal entry required to adjust the investment's carrying amount to fair value at the end of the first year. (Record debits first, then credits. Exclude explanations from any journal entries. Use previous calculated amounts rounded to the nearest whole dollar, and enter any amounts into the journal entry table below to the nearest whole dollar.) Deceber 31, Year 1 Account (13) (14) |(15) (16) Requirement f. Prepare the journal entry to record the sale of the investment on January 2 of year 2 for a net price of $686,000. (Record debits first, then credits. Exclude explanations from any journal entries. Use previously calculated amounts rounded to the nearest whole dollar, and enter any amounts into the journal entry table below to the nearest whole dollar.) Disposal Account (17) (18) (19) (20) a. b. 1: Requirements Determine the purchase price of the investment in bonds. Prepare the journal entry to record the acquisition of the bond investment. Prepare an amortization table assuming that Djoko uses the effective interest rate method. Prepare the journal entry to record the interest income for the first two years. Prepare the journal entry required to adjust the investment's carrying amount to fair value at the end of the first year. f. Prepare the journal entry to record the sale of the investment on January 2 of year 2 for a net price of $686,000 C. d. e. 2 4. Djoko Software Group acquired $1,300,000 par value, zero coupon, five-year bonds on their date of issue, January 1 of the current year. The market rate at the time of issue was 8% and interest is compounded annually. Djoko uses the effective interest rate method to account for this investment. The company classifies the investment as a trading security. The fair value of the bonds at the end of the year of acquisition is $821,000. Read the requirements? (Click the icon to view the Future Value of 3 $1 table.) (Click the icon to view the Future Value of 5 an Ordinary Annuity table.) (Click the icon to view the Future Value of 7 an Annuity Due table.) (Click the icon to view the Present Value of $1 table.) (Click the icon to view the Present Value of an Ordinary Annuity table.) (Click the icon to view the Present Value of an Annuity Due table.) 6 Requirement a. Determine the purchase price of the investment in bonds. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round intermediary currency computations and your final answers to the nearest whole dollar.) The purchase price of the bonds is $ Requirement b. Prepare the journal entry to record the acquisition of the bond investment. (Record debits first, then credits. Exclude explanations from any journal entries. Enter amounts to the nearest whole dollar.) Acquisition Account (1) (2) (3) Requirement c. Prepare an amortization table assuming that Djoko uses the effective interest rate method. (Complete all answer boxes. Enter a "0" for any zero balances. Round all amounts you enter into the amortization table to the nearest whole dollar and enter all amounts as positive numbers. Enter all amounts into the table as calculated using the instructed rounding. Note that rounding differences may occur. Do not "plug" effective interest and/or discount amortization amounts to adjust for any rounding differences.) Cash Effective Discount Amortized Period Interest Interest Amortization Cost 0 1 2 3 4 5 Requirement d. Prepare the journal entry to record the interest income for the first two years. (Record debits first, then credits. Exclude explanations from any journal entries. Enter amounts to the nearest whole dollar.) Begin by preparing the journal entry to record interest income for the first year. December 31, Year 1 Account (5) (6) (7) (8) Now prepare the journal entry to record interest income for the second year. December 31, Year 2 Account (9) (10) |(11) (12) Requirement e. Prepare the journal entry required to adjust the investment's carrying amount to fair value at the end of the first year. (Record debits first, then credits. Exclude explanations from any journal entries. Use previous calculated amounts rounded to the nearest whole dollar, and enter any amounts into the journal entry table below to the nearest whole dollar.) Deceber 31, Year 1 Account (13) (14) |(15) (16) Requirement f. Prepare the journal entry to record the sale of the investment on January 2 of year 2 for a net price of $686,000. (Record debits first, then credits. Exclude explanations from any journal entries. Use previously calculated amounts rounded to the nearest whole dollar, and enter any amounts into the journal entry table below to the nearest whole dollar.) Disposal Account (17) (18) (19) (20) a. b. 1: Requirements Determine the purchase price of the investment in bonds. Prepare the journal entry to record the acquisition of the bond investment. Prepare an amortization table assuming that Djoko uses the effective interest rate method. Prepare the journal entry to record the interest income for the first two years. Prepare the journal entry required to adjust the investment's carrying amount to fair value at the end of the first year. f. Prepare the journal entry to record the sale of the investment on January 2 of year 2 for a net price of $686,000 C. d. e

Answer & Explanation Solved by verified expert

See Answer