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Cardinal Paz Corp. carries an account in its general ledger called Investments, which contained debits for investment purchases, and no credits, with the following descriptions.Feb. 1, 2012
Sharapova Company common stock, $100 par, 200 shares $ 37,400
April 1 U.S. government bonds, 11%, due April 1, 2022, interest payableApril 1 and October 1, 110 bonds of $1,000 par each $ 110,000
July 1 McGrath
Company 12% bonds, par $50,000, dated March 1, 2012,
purchased at 104 plus accrued interest, interest payable
annually on March 1, due March 1, 2032
$
54,000
Instructions
(Round all computations to the nearest dollar.)(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that all thesecurities are classified as available-for-sale.(b)
Prepare the entry to record the accrued interest and the amortization of premium on December31, 2012, using the straight-line method.(c) The fair values of the investments on December 31, 2012
, were:
Sharapova Company common stock $ 31,800
U.S. government bonds $ 124,700
McGrath Company bonds $ 58,600
SOLUTION
(a) Debt Investments (Available-for-Sale) ………………………….162,000*
Equity Investments (Available-for-Sale) …………………………..37,400
Interest Revenue ($50,000 X .12 X 4/12) …………………………. 2,000
Investments …………………………………………………………………… 201,400*[$110,000 + ($50,000 X 1.04)]
(b)December 31, 2012Interest Receivable …………………………………………………………..8,025
Debt Investments (Available-for-Sale) ……………………………… 51
Interest Revenue…………………………………………………………….. 7,974
[Accrued interest[$50,000 X .12 X 10/12 = $5,000
Premium amortization
6/236 X $2,000 = (51)
Accrued interest[$110,000 X .11 X 3/12 = 3,025
All I need to know is how they these numbers for Premium amortization 6/236? 6/236 because I don’t understand how they got those numbers McGrath Company 12% bonds, par $50,000, dated March 1, 2012,
purchased at 104 plus accrued interest, interest payableannually on March 1, due March 1, 2032
…………………………….
54,000
