May I please check if my reasoning was correct? Especially the last two - \"Bond
ID: 2801185 • Letter: M
Question
May I please check if my reasoning was correct? Especially the last two - "Bonds year end fair value is determined" and "Loudder sells all bonds" Thank you
Marketable Debt Securities
Use the financial statement effects template to record the accounts and amounts for the following four transactions involving investments in marketable debt securities classified as available-for-sale securities. Assume that these transactions occur in 2016 (before the new rules for securities went into effect).
a. Loudder Inc. purchases 4,000 bonds with a face value of $1,000 per bond. The bonds are purchased at par for cash and pay interest at a semi-annual rate of 4%.
b. Loudder receives semi-annual cash interest of $160,000.
c. Year-end fair value of the bonds is $978 per bond.
d. Shortly after year-end, Loudder sells all 4,000 bonds for $970 per bond.
Use negative signs with answers, if appropriate.
Balance Sheet
Income Statement
Noncash
Contrib.
Earned
Transaction
Cash Asset
+
Assets
=
Liabilities
+
Captial
+
Capital
Revenues
-
Expenses
=
Net income
Loudder purchases bonds.
(4,000,000)
4,000,000
Answer
Answer
Answer
Answer
Answer
Answer
Loudder receives cash interest.
160,000
Answer
Answer
Answer
160,000
160,000
Answer
160,000
Bonds year-end fair value is determined.
Answer
(88,000)
Answer
Answer
(88,000)
Answer
88,000
(88,000)
Loudder sells all bonds
3,880,000
(3,912,000)
Answer
Answer
(32,000)
Answer
32,000
(32,000)
Balance Sheet
Income Statement
Noncash
Contrib.
Earned
Transaction
Cash Asset
+
Assets
=
Liabilities
+
Captial
+
Capital
Revenues
-
Expenses
=
Net income
Loudder purchases bonds.
(4,000,000)
4,000,000
Answer
Answer
Answer
Answer
Answer
Answer
Loudder receives cash interest.
160,000
Answer
Answer
Answer
160,000
160,000
Answer
160,000
Bonds year-end fair value is determined.
Answer
(88,000)
Answer
Answer
(88,000)
Answer
88,000
(88,000)
Loudder sells all bonds
3,880,000
(3,912,000)
Answer
Answer
(32,000)
Answer
32,000
(32,000)
Explanation / Answer
a) For purchase of bonds:
Available for sale investments Dr. $4,000,000
Cash Cr. $4,000,000
b) When interest is received:
Cash Dr. $160,000
Interest Income Cr. $160,000
c) Change in fair value of bonds:
Equity Dr. $88,000
Available for sale investments Cr. $88,000
d) Sale of bonds:
Equity Dr. $32,000
Cash Dr. $3,880,000
Available for sale investments Cr. $3,912,000