Answer:
Debt Securities 500,000 debit
cash 475,414 credit
discount on debt Securities 24,586 credit
--to record purchase of bonds--
cash 25,000 debit
discount on debt Securities 3,524.82 debit
Interest revenue 28524.82 credit
--to record first interest coupon collection--
478,938 x 0.12/2 = 28736.31 revenue
cash 25000
amortization 3736.31
cash 25,000 debit
discount on debt Securities 3,736.31 debit
Interest revenue 28,736.31 credit
--to record second interest coupon collection--
cash 127,000
discount on debt securities 4.331,25
debt securities 125,000
short-capital gain 6,331.25
--to record sale of bonds---
after this and the subsequent interest payment, the discount is write-off entirely and in maturity we record:
cash 375,000 debit
debt securities 375,000 credit
--to record maturity of the bonds on Dec 31th 2021--
Explanation:
procceds 475,414
face value <u>500,000</u>
discount -24,586
interest will be calcualte as the result of the carying value times the market rate:
475,414 x 0.12/2 = 28524.82
cash inflow: 500,000 x 10% / 2 = 25,000
amortization on discount: 3,524.82
second will be the same procedure:
478,938 x 0.12/2 = 28736.31 revenue
cash 25000
amortization 3736.31
partial sale of 1/4 of the bond:
500,000 / 4 = 125,000
500,000 discount outstanding of 17.325
125,000 has a discount of 4.331,25
<em><u>value of the bonds sold:</u></em>
125,000 - 4331.25 = 120.668,75
sale at 127,000
short capital-gian on sale: 6.331,25
