Presented below is an amortization schedule related to Spangler Company\'s 5-yea
ID: 2419985 • Letter: P
Question
Presented below is an amortization schedule related to Spangler Company's 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660. Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of Bonds
12/31/11 $108,660
12/31/12 $7,000 $5,433 $1,567 107,093
12/31/13 7,000 5,354 1,646 105,447
12/31/14 7,000 5,272 1,728 103,719
12/31/15 7,000 5,186 1,814 101,905
12/31/16 7,000 5,095 1,905 100,000
Spangler agredd with Cogswell the debtor to restruture the debt on dec 31 2013. They reduced the principal from 100000 to 60,000 reduced stated interest rate from 7% to 6% and extended the maturity date to 12/31/18. Required: 1. Compute Spangler creditor loss on restructuring that should be reported on 12/31/13 and record the journal entry. 2. Compte the gain on restructuring if any that cogswell should report on 12/31/13 and record the journal entry.
Explanation / Answer
Answer a)
Journal Entry
31-12-12
Investment (HTM) A/c Dr.
108660
To Bank A/c
108660
(Being 7% Bonds of Spangler Company Purchased)
Answer b)
31-12-13
Bank A/c Dr.
7000
To Interest A/c
5433
To Investment (HTM) A/c
1567
(Being the interst recd in 2013)
Answer c)
31-12-15
Bank A/c Dr.
7000
To Interest A/c
5272
To Investment (HTM) A/c
1728
(Being the interst recd in 2015)
Answer d)
31-12-12
Investment (SAS) A/c Dr.
108660
To Bank A/c
108660
(Being 7% Bonds of Spangler Company Purchased)
Answer e)
31-12-13
Bank A/c Dr.
7000
To Interest A/c
5433
To Investment (SAS) A/c
1567
(Being the interst recd in 2013)
31-12-13
Profit & loss A/c Dr.
593
To Investment (SAS) A/c
593
(Being Market value of investment decreases)
Working Notes
New FMV
106500
Amortized Value
107093
Profit / (Loss) on investment
-593
Answer f)
31-12-15
Bank A/c Dr.
7000
To Interest A/c
5272
To Investment (SAS) A/c
1728
(Being the interst recd in 2015)
31-12-13
Profit & loss A/c Dr.
1850
To Investment (SAS) A/c
1850
(Being Market value of investment decreases)
Working Notes
FMV as on 2015
105650
FMV as on 2014
107500
Profit / (Loss) on investment
-1850
Answer a)
Journal Entry
31-12-12
Investment (HTM) A/c Dr.
108660
To Bank A/c
108660
(Being 7% Bonds of Spangler Company Purchased)
Answer b)
31-12-13
Bank A/c Dr.
7000
To Interest A/c
5433
To Investment (HTM) A/c
1567
(Being the interst recd in 2013)
Answer c)
31-12-15
Bank A/c Dr.
7000
To Interest A/c
5272
To Investment (HTM) A/c
1728
(Being the interst recd in 2015)
Answer d)
31-12-12
Investment (SAS) A/c Dr.
108660
To Bank A/c
108660
(Being 7% Bonds of Spangler Company Purchased)
Answer e)
31-12-13
Bank A/c Dr.
7000
To Interest A/c
5433
To Investment (SAS) A/c
1567
(Being the interst recd in 2013)
31-12-13
Profit & loss A/c Dr.
593
To Investment (SAS) A/c
593
(Being Market value of investment decreases)
Working Notes
New FMV
106500
Amortized Value
107093
Profit / (Loss) on investment
-593
Answer f)
31-12-15
Bank A/c Dr.
7000
To Interest A/c
5272
To Investment (SAS) A/c
1728
(Being the interst recd in 2015)
31-12-13
Profit & loss A/c Dr.
1850
To Investment (SAS) A/c
1850
(Being Market value of investment decreases)
Working Notes
FMV as on 2015
105650
FMV as on 2014
107500
Profit / (Loss) on investment
-1850
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