On September 30 of Year 1, New Apple Inc. purchased $24,000 of Mack Corp. bonds. These...

 

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On September 30 of Year 1, New Apple Inc. purchased $24,000 of Mack Corp. bonds. These bonds pay 5% cash interest annually on September 30 and mature September 30 in Year 11. The investment is classified as a TS investment and the company uses the effective interest method to amortize any bond discount or premium. The market rate on the bonds is 6%. Note: Round your answers to the following questions to the nearest whole dollar. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). a. Do Mack Corp. bonds sell at a discount or premium? Discount ✓ Determine the selling price of the bonds. $0 b. Record the entry for the purchase of the bonds by New Apple Inc. c. Record the entry on December 31 of Year 1 to record interest revenue. d. Record the entry on December 31 of Year 1 to adjust the investment to fair value, determined to be $25,200 on December 31 of Year 1. Record the entry to sell the bonds on January 1 of Year 2 for $25,200, plus accrued interest under Accounting Treatment #1: Compute the gain or loss on sale as the difference between the cash received and the amortized cost of the investment; adjust the Fair Value Adjustment account only at year-end. f. Record any required adjusting entries on December 31 of Year 2. On September 30 of Year 1, New Apple Inc. purchased $24,000 of Mack Corp. bonds. These bonds pay 5% cash interest annually on September 30 and mature September 30 in Year 11. The investment is classified as a TS investment and the company uses the effective interest method to amortize any bond discount or premium. The market rate on the bonds is 6%. Note: Round your answers to the following questions to the nearest whole dollar. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). a. Do Mack Corp. bonds sell at a discount or premium? Discount ✓ Determine the selling price of the bonds. $0 b. Record the entry for the purchase of the bonds by New Apple Inc. c. Record the entry on December 31 of Year 1 to record interest revenue. d. Record the entry on December 31 of Year 1 to adjust the investment to fair value, determined to be $25,200 on December 31 of Year 1. Record the entry to sell the bonds on January 1 of Year 2 for $25,200, plus accrued interest under Accounting Treatment #1: Compute the gain or loss on sale as the difference between the cash received and the amortized cost of the investment; adjust the Fair Value Adjustment account only at year-end. f. Record any required adjusting entries on December 31 of Year 2.