# Kaki Company acquired 6,000,000 12% bonds on Feb. 1, 2020 for 5,486,000 to be held as financial

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## Question:

Kaki Company acquired 6,000,000 12% bonds on Feb. 1, 2020 for 5,486,000 to be held as financial assets at amortized cost.

The bonds pay interest annually on Feb. 1 and mature on Feb. 1, 2024. The bonds are acquired to yield a 15% effective rate.

The fiscal period for the entity is the calendar period. Amortization is done following the effective interest method.

On May 1, 2021, Kaki Company sold all the bonds at 105 plus accrued interest.

*Requirements:*

- Compute the carrying amount of Investment in Bonds on Feb 1, 2020
- Compute the cash paid on Feb 1, 2020
- Compute the premium/discount over the life of the investment
- If the company uses the straight line method of amortization, compute the premium/discount amortization for the fiscal period ended on Feb 1, 2021
- If the company uses the straight line method of amortization, compute the interest income for the fiscal period ended on Feb 1, 2021
- If the company uses the straight line method of amortization, compute the carrying amount of investment in bonds on Feb 1, 2021
- If the company uses the straight line method of amortization, compute the gain/loss on sale of investment on May 1, 2021.
- If the company uses the effective interest method of amortization, compute the premium/discount amortization for the fiscal period ended on Feb 1, 2021
- If the company uses the effective interest method of amortization, compute the interest income for the fiscal period ended on Feb 1, 2021
- If the company uses the effective interest method of amortization, compute the carrying amount of investment in bonds on Feb 1, 2021
- If the company uses the effective interst method of amortization, compute the gain/loss on sale of investment on May 1, 2021.

**Related Book For**

## Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill