Tsunami Sushi purchases $130,000 of 5-year, 7% bonds from Deep Sea Explorers on January 1. Management intends
Question:
Tsunami Sushi purchases $130,000 of 5-year, 7% bonds from Deep Sea Explorers on January 1. Management intends to hold the debt securities to maturity. For bonds of similar risk and maturity, the market rate is 8%. Tsunami paid $124,728 for the bonds. It receives interest semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31 is $124,000.
Required:
1. Record Tsunami Sushi’s investment on January 1.
2. Record the interest revenue earned by Tsunami Sushi for the first six months ended June 30.
3. Record the interest revenue earned by Tsunami Sushi for the next six months ended December 31.
4. At what amount will Tsunami Sushi report its investment in the December 31 balance sheet? Why?
5. Suppose Tsunami Sushi decides on December 31 that it no longer intends to hold the debt securities until maturity and will likely sell them early next year. Record any necessary fair value adjustment.
MaturityMaturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Step by Step Answer:
Financial Accounting
ISBN: 978-1259914898
5th edition
Authors: David Spiceland, Wayne M. Thomas, Don Herrmann