Brief Exercise 17-2 Garfield Company purchased, as an available-for-sale securit

Question

Brief Exercise 17-2

Garfield Company purchased, as an available-for-sale security, $85,200 of the 9%, 6-year bonds of Chester Corporation for $77,991, which provides an 11% return.

Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in
the Fair Value Adjustment account.) The bonds have a year-end fair value of $80,940. (Round answers to 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

(a)

(b)

(c)

No.

Account Titles and Explanation

Debit

Credit

(a)

(b)

(c)

Explanation / Answer

Current Fair Value of the bonds at 11% discount rate = Present Value of Interest payments + Present Value of Principal amount

= (7668*4.231) + (85200*0.535)

= $78025

Unrealsied Gain / loss = Purchase Price - Current fair value

= 77991 - 78025

= -34

Journal Entries:

Date Account Name Debit Credit a. Available - for - Sale Securities 77991            Cash 77991 b. Available - for - Sale Securities 34             Unrealised Loss           34 Cash 7668             Interest on bonds 7668 c. Available - for - Sale Securities 2915              Unrealized gain 2915

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.