BUS 4153 FINANCIAL ACCOUNTING Class Exercise Exercise 1 Lance Brothers Enterpris

Question

BUS 4153 FINANCIAL ACCOUNTING Class Exercise Exercise 1 Lance Brothers Enterprises acquired $720,000 of 3% bonds, dated July 1, on July 1, 2018, as a long-term investment. Manag ability to hold the bonds until maturity. The market ement has the positive intent and interest rate (yield) was 4% for bonds of similar risk and maturity. Lance Brothers paid $600,00o for the investment in bonds and will receive interest semiannually on June 30 and December 31. Requirement Prepare the journal entries (a) to record Lance Brothers investment in the bonds on July 1, 2018, and (b) to record interest on December 31, 2018, at the effective (market) rate Exercise2 Debt Investment-AFS purhased several marketale socuritis during 2018 A Decewher 31. 5018the copay hadth Decber 31, 2017, and all ave coesidened secares vestments in boads listed below None was held at the a sepoting date Uealaed Holding Cost 5 400000 405,000 Bat. I NC Corponton 50 000 Total 545.000 400,000 20.000 560 000 6 000 ake Copan 60000 5 20000 1. Prepare appropriate adjusting entries at December 31, 2018.

Explanation / Answer

As per policy, only one question is allowed to answer at a time, so answering Ex 1 :

Exercise 1: Journal Entries: Date Accounts Titles Debit$ Credit$ (a) July 1 2018 Bond Receivable 720000 Cash 600000 Discount on Bond Receivable 120000 (being purchase of bonds on discount) (b) dec 31,2018 Cash (720000*3% /2) 10800 Discount on Bond Receivable 1200 Interest Revenue 12000 (discount amortised = 600000*4% - 10800)

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