Read the following case and use your knowledge, skills, and critical thinking to answer the questions...

 

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Read the following case and use your knowledge, skills, and critical thinking to answer the questions below: You work as CFO of American Company which has great amount of remaining cash. You are working hard to provide your experience for investing the remaining cash. You suggested that the best way to invest in purchasing the bonds of other companies known as debt investments, because you believe that debt investments are safe, secure, and profitable investments. Required 1: You believe that the American Company must apply the amortized cost method to account for its purchase of debt investments, what criteria must be met to apply the amortized cost method? Required 2: Based on the information provided in the case above, can the American Company choose the fair value option to account for this debt investment? If yes, can the company change to apply the amortized cost method next year? If no, briefly explain? Required 3: On January 1, 2019, American Company purchased 20,000 bonds of Mexico Company, par value $1,800,000, 9% bonds at a price of $1,670,304. The interest is payable each January 1, and the bonds mature January 1, 2024. The debt investment will provide American Company a 12% yield. What is the journal entry to record the purchase of Mexico Company debt investments? Required 4: Based on the information provided in required 3, prepare a bond amortization schedule for the first 2 years? Required 5: What is the effect of previous transactions on the statement of financial position on December 31, 2020? Required 6: Assume that the American Company sold its investment in Mexico Company on July 1, 2020, at 97 plus accrued interest, prepare the journal entries to record this transaction. Read the following case and use your knowledge, skills, and critical thinking to answer the questions below: You work as CFO of American Company which has great amount of remaining cash. You are working hard to provide your experience for investing the remaining cash. You suggested that the best way to invest in purchasing the bonds of other companies known as debt investments, because you believe that debt investments are safe, secure, and profitable investments. Required 1: You believe that the American Company must apply the amortized cost method to account for its purchase of debt investments, what criteria must be met to apply the amortized cost method? Required 2: Based on the information provided in the case above, can the American Company choose the fair value option to account for this debt investment? If yes, can the company change to apply the amortized cost method next year? If no, briefly explain? Required 3: On January 1, 2019, American Company purchased 20,000 bonds of Mexico Company, par value $1,800,000, 9% bonds at a price of $1,670,304. The interest is payable each January 1, and the bonds mature January 1, 2024. The debt investment will provide American Company a 12% yield. What is the journal entry to record the purchase of Mexico Company debt investments? Required 4: Based on the information provided in required 3, prepare a bond amortization schedule for the first 2 years? Required 5: What is the effect of previous transactions on the statement of financial position on December 31, 2020? Required 6: Assume that the American Company sold its investment in Mexico Company on July 1, 2020, at 97 plus accrued interest, prepare the journal entries to record this transaction.

Answer rating: 100% (QA)

Required 1 Based on the information provided in the case it is possible for the American Company to apply the amortized cost method to account for its ... View the full answer