Debt Investment Transactions, Available-for-Sale Valuation Dollar Mart Inc. is a

Question

Debt Investment Transactions, Available-for-Sale Valuation Dollar Mart Inc. is a general merchandise retail company that began operations on January 1, 2012. The following transactions relate to debt investments acquired by Dollar Mart Inc., which has a fiscal year ending on December 31: 2012 May 1 Purchased $72,000 of Elkin City 4%, 10-year bonds at face value plus accrued interest of $480. The bonds pay interest semiannually on March 1 and September 1. June 16 Purchased $124,000 of Morgan Co. 6%, 12-year bonds at face value plus accrued interest of $310. The bonds pay interest semiannually on June 1 and December 1. Sep. 1 Received semiannual interest on the Elkin City bonds. Oct. 1 Sold $28,800 of Elkin City bonds at 103 plus accrued interest of $96. Dec. 1 Received semiannual interest on Morgan Co. bonds. Dec. 31 Accrued $576 interest on Elkin City bonds. Dec. 31 Accrued $620 interest on Morgan Co. bonds. 2013 Mar. 1 Received semiannual interest on the Elkin City bonds. June 1 Received semiannual interest on the Morgan Co. bonds.

Explanation / Answer

Acruited interest is the only important part that needs to be understood and then debt can be calculated as the acruited interset can be found Acruited interest:- Interest that is due on a bond or other fixed income security since the last interest payment was made. This often occurs for bonds purchased on the secondary market, since bonds usually pay interest every six months, but the interest is accrued by the bondholders on a day-to-day basis. When a bond is sold, the buyer pays the seller the market price plus the accrued interest, for which the buyer will be reimbursed when the issuer pays next pays interest. Accrued interest is calculated on a 30-day month/360-day year for corporate bonds and municipal bonds, and on actual-calendar-days for Government bonds. Income bonds and bonds in default trade without accrued interest. When calculating accrued interest on a bond that is being sold, it is conventional to consider the time period from the most recent payment up to, but not including, the date on which the bond sale is settled. 2. Interest that a company owes, a current liability on the balance sheet.

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