Question

On July 1, 2017, Wildhorse Company purchased $4,150,000 of Duggen Company's 8% bonds, due on July 1, 2024. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,600,000 to yield 10%. These bonds are dassified as available for Sale and they have a fair value at December 31, 2017, of $3,708,800, prepare the journal entry (if any) at December 31, 2017, to record this transaction. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Dec 31, 2017 Trair Value Adjustment Unrealized Holding Gain or Loss - Equity Click if you would like to Show Work for this question: Open Show Work

Answer 1

Answer:

Date	Account title and Explanation	Debit	Credit
Dec 31,2017	Fair value adjustment	$94,800
	Unrealized holding gain or loss - Equity		$9,400

Calculations:

i. Interest revenue for 2017 (July 1 to Dec 31) = $3,600,000 x 10% x (6/12) = $180,000

ii. Interest receivable for 2017 = $4,150,000 x 8% x (6/12) = $166,000

iii. Discount amortized for = Interest revenue - Interest receivable = $180,000 - $166,000 = $14,000

iv. Carrying amount at Dec 31,2017 = Carrying value at July 1,2017 + Discount amortized during 2017

= $3,600,000 + $14,000

= $3,614,000

v. Unrealized holding gain = Fair value at Dec 31,2017 - Carrying value at Dec 31,2017

= $3,708,800 - $3,614,000

= $94,800