Login Registrieren

Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 10: 10-9E_3 (page 569)

9 Accounting for debt investments
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to hold the investment until maturity.
Requirements
3. How much interest revenue will Advance report during 2018 on this bond investment?

Short Answer

Expert verified

The business entity will receive$33,000 as interest during 2018.

Step by step solution

01

Definition of Holding Period

The period for which the investor holds the investment is known as the holding period. It depends upon the type of investment made.

02

Interest Reported During 2018

Particular	Amount $
Interest received on 30 June 2018	$16,500
Add: Interest received on 31 Dec 2018	$16,500
Total interest received during the year 2018	$33,000

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Accounting for equity investments

Captain Investments completed the following investment transactions during 2018:

Jan. 14 Purchased 200 shares of Velcon stock, paying \(53 per share. The investment represents 4% ownership in Velcon’s voting stock. Captain does not have significant influence over Velcon. Captain intends to hold the investment for the indefinite future.

Aug. 22 Received a cash dividend of \)0.28 per share on the Velcon stock.

Dec. 31 Adjusted the Velcon investment to its current market value of $58.

Requirements

What account(s) and amount(s), if any, would be reported on Captain’s income statement for the year ended December 31, 2018?

Computing rate of return on total assets

Montane Exploration Company reported these figures for 2018 and 2017:

Income statement: Partial	2018	2017
Interest expenses	\(16,700,000	\)16,500,000
Net income	16,900,000	20,200,000
Balance sheet: Partial	Dec 31, 2018	Dec 31, 2017
Total assets	\(316,000,000	\)420,000,000

Compute the rate of return on total assets for 2018. (Round to two decimals.)

Accounting for debt investments

On January 1, 2018, the Chaucer’s Restaurant decides to invest in Lake Turner bonds. The bonds mature on December 31, 2023, and pay interest on June 30 and December31 at 4% annually. The market rate of interest was 4% on January 1, 2018, so the $90,000 maturity value bonds sold for face value. Chaucer’s intends to hold the bonds until December 31, 2023.

Requirements

1. Journalize the transactions related to Chaucer’s investment in Lake Turner bonds during 2018.

What is equity security?

On May 15, 2018, Mayer Co. invests \(8,000 in John, Inc. stock. John pays Mayer a \)200 dividend on November 15, 2018. Mayer sells the John stock on December 10, 2018, for $7,500. Assume the Mayer Co. does not have significant influence over John, Inc. Journalize the 2018 transactions related to Mayer’s investment in John stock.

See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Public Relations Business Studies

Read Explanation

Strategic Analysis

Read Explanation

Managers

Read Explanation

Project Planning & Management

Read Explanation

International Business

Read Explanation

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free