On February 1, 2024, Wooden Ships Company issued 10 year, 10% bonds that have a par...

 

Transcribed Image Text:

On February 1, 2024, Wooden Ships Company issued 10 year, 10% bonds that have a par value of $17 million. For bonds of similar risk and maturity, the market yield was 13% on the date of issue. Interest is paid semiannually on July 31 and January 31. So, the bonds were issued (i.e., sold) at 83.472. On 12/31/24, the market value of the bonds was 80, and on 12/31/25, it was 103. The bonds are callable beginning 12/31/25 at 102.5. Crosby Company bought all of the bonds as an investment on 2/1/2024, paying 83.472 as indicated above. A partial amortization schedule appears below. Cash Interest Discount Interest Income Amortized 72,366 77,069 82,079 7/31/2024 850,000 922,366 1/31/2025 850,000 927,069 7/31/2025 850,000 932,079 1/31/2026 850,000 937,414 87,414 7/31/2026 850,000 943,096 93,096 1/31/2027 850,000 949,147 7/31/2027 850,000 955,592 105,592 99,147 $ a. What is total interest income related to the bonds for the calendar year 2025 if Crosby accounts for the bonds as held to maturity $ b. What is the total impact of the bonds on Crosby's pretax income in 2024 if the bonds are accounted for as trading. Increase Carrying Value 14,190,240 14,262,606 14,339,675 14,421,754 14,509,168 14,602,264 14,701,411 14,807,003 Decrease Increase c. What is the total impact of the bonds on Crosby's pretax income in 2024 if the bonds are accounted for as available for sale. $ Decrease d. What is the change in Crosby's OCI in 2024 if the bonds are accounted for as available for sale. Increase Decrease e. What would the gain or loss on sale be if Crosby sold the bonds on 1/1/25 for 100, if the bonds are classified as: Held-to-maturity $ Available-for-sale $ Trading $ Gain Loss Gain Loss Gain Loss On February 1, 2024, Wooden Ships Company issued 10 year, 10% bonds that have a par value of $17 million. For bonds of similar risk and maturity, the market yield was 13% on the date of issue. Interest is paid semiannually on July 31 and January 31. So, the bonds were issued (i.e., sold) at 83.472. On 12/31/24, the market value of the bonds was 80, and on 12/31/25, it was 103. The bonds are callable beginning 12/31/25 at 102.5. Crosby Company bought all of the bonds as an investment on 2/1/2024, paying 83.472 as indicated above. A partial amortization schedule appears below. Cash Interest Discount Interest Income Amortized 72,366 77,069 82,079 7/31/2024 850,000 922,366 1/31/2025 850,000 927,069 7/31/2025 850,000 932,079 1/31/2026 850,000 937,414 87,414 7/31/2026 850,000 943,096 93,096 1/31/2027 850,000 949,147 7/31/2027 850,000 955,592 105,592 99,147 $ a. What is total interest income related to the bonds for the calendar year 2025 if Crosby accounts for the bonds as held to maturity $ b. What is the total impact of the bonds on Crosby's pretax income in 2024 if the bonds are accounted for as trading. Increase Carrying Value 14,190,240 14,262,606 14,339,675 14,421,754 14,509,168 14,602,264 14,701,411 14,807,003 Decrease Increase c. What is the total impact of the bonds on Crosby's pretax income in 2024 if the bonds are accounted for as available for sale. $ Decrease d. What is the change in Crosby's OCI in 2024 if the bonds are accounted for as available for sale. Increase Decrease e. What would the gain or loss on sale be if Crosby sold the bonds on 1/1/25 for 100, if the bonds are classified as: Held-to-maturity $ Available-for-sale $ Trading $ Gain Loss Gain Loss Gain Loss

Answer rating: 100% (QA)

a To calculate the total interest income related to the bonds for the calendar year 2025 sum up the interest amounts received during that year From th... View the full answer