Question

Appling Enterprises issued 10% bonds with a face amount of $560,000 on January 1, 2021. The bonds sold for $515,071 and mature in 2040 (20 years). For bonds of similar risk and maturity the market yield was 11%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter during 2021 as determined by their market values in the over-the-counter market were the following: March 31 June 30 September 30 December 31 $540,000 520,000 515,000 522,000 General (risk-free) interest rates did not change during 2021. Required: 1. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the March 31 quarterly financial statements? 2. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the June 30 quarterly financial statements? 3. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the September 30 quarterly financial statements? 4. By how much will Appling's comprehensive income be increased or decreased by the bonds (ignoring taxes) in the December 31 annual financial statements? (For all requirements, do not round your intermediate calculations.)

Answer 1

Answer:

The overview of the given situation is described in the explanation segment below.

Explanation:

The Journal entry is give below:

           Value at              Current           Decrease in           Paid               [A+B]

          beginning             value                value [V]             interest             ($)

               ($)                       ($)                       ($)                       ($)        Decrease

Mar     515,071            540,000               24,929                    -               24,929

June  540,000           520,000             -20,000              28,000            8,000

                                                                                   ($560,000\times 10 \percent\times \frac{6}{12}$)

Sept    520,000           515,000               -5,000                    -                  5,000

Dec     515,071             522,000               6,929                 56,000         62,929

                                                                                   ($560,000\times 10 \ percent$)