INTERMEDIATE ACCOUNTING 2

CHAPTER 17
INVESTMENTS

SOAL 1 DEBT INVESTMENTS (FVOCI)

On January 1, 2017, Ellison Company purchased 12% bonds, having a maturity value of
$800,000, for $860,652. The bonds provide the bondholders with a 10% yield. They are dated
January 1, 2017, and mature January 1, 2023, with interest receivable December 31 of each
year. Ellison’s business model is to hold these bonds to collect contractual cash flows and
selling the bonds.

Instructions
a) Prepare a bond amortization schedule through 2019.
b) Prepare the journal entry at the date of the bond purchase.
c) Prepare the journal entry to record the interest received and the amortization for 2017.
d) Prepare any entries necessary at December 31, 2017, assuming the fair value of the
bonds is $860,000.
e) Prepare any entries necessary at December 31, 2018, assuming the fair value of the
bonds is $840,000.
f) Prepare any entries necessary at March 1, 2019, if Ellison sold the Watson bonds for
$850,000.

SOAL 2 DEBT INVESTMENTS (Amortised Cost)

On July 1, 2017, Kirmer Corp. purchased $450,000 of 6% bonds, interest payable on January 1
and July 1, for $428,800 (a 7% effective interest rate). The bonds mature on July 1, 2023.
Amortization is recorded when interest is received by the effective-interest method (round to the
nearest dollar). Kirmer Corp’s business model is to hold these bonds to collect contractual cash
flows.

Instructions
a) Prepare a bond amortization schedule through 2018.
b) Prepare the journal entry at the date of the bond purchase.
c) Prepare the journal entry to record the interest received and the amortization for 2017
d) Prepare the journal entry to record the interest received on January 1, 2018
e) Prepare the journal entry if the bonds are sold on October 1, 2018 for $427,000 plus
accrued interest.

SOAL 3 DEBT INVESTMENTS

Presented below is an amortization schedule related to PT Maju Bersama’s 5-year, $100,000
bond with a 7% interest rate and a 5% yield, purchased on December 31, 2017, for $108,660.

Date Cash received Interest Bond Premium Carrying

Revenue Amortization Amount of
Bonds
12/31/17 $108,660
12/31/18 $7,000 $5,433 $1,567 107,093
12/31/19 7,000 5,354 1,646 105,447
12/31/20 7,000 5,272 1,728 103,719
12/31/21 7,000 5,186 1,814 101,905
12/31/22 7,000 5,095 1,905 100,000

The following schedule presents a comparison of the amortized cost and fair value of the bonds
at year-end:

12/31/18 12/31/19 12/31/20 12/31/21 12/31/22

Amortized $107,093 $105,447 $103,719 $101,905 $100,000
Cost
Fair Value 106,500 107,500 105,650 103,000 100,000

Instructions
Assuming the bonds classified as amortised cost.
a. Prepare the journal entry to record the purchase of these bonds on December 31, 2017
b. Prepare the journal entry(ies) for 2018.
c. Prepare the journal entry(ies) for 2020.

Assuming the bonds classified as FVTPL

a. Prepare the journal entry(ies) to record the purchase of these bonds
b. Prepare the journal entry(ies) for 2018.
c. Prepare the journal entry(ies) for 2020.