Resource: Intermediate Accounting
Prepare written responses to the following assignments from the text:
ACC423 Week 3 Learning Team P17-1 P17-9
• Ch. 17: Problems P17-1 & P17-9
P17-1 (Debt Securities) Presented below is an amortization schedule related to Kathy Baker Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2004, for $108,660.
Cash Interest Bond Premium Carrying Amount
Date Received Revenue Amortization of Bonds
12/31/04 $108,660
12/31/05 $7,000 $5,433 $1,567 107,093
12/31/06 7,000 5,354 1,646 105,447
12/31/07 7,000 5,272 1,728 103,719
12/31/08 7,000 5,186 1,814 101,905
12/31/09 7,000 5,095 1,905 100,000
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09
Amortized cost $107,093 $105,447 $103,719 $101,905 $100,000
Fair value $106,500 $107,500 $105,650 $103,000 $100,000
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2004, assuming
the bonds are classified as held-to-maturity securities.
(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2005.
(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2007.
(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified
as available-for-sale.
(e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2005.
(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2007.
P17-9 (Financial Statement Presentation of Available-for-Sale Investments) Woolford Company has the following portfolio of available-for-sale securities at December 31, 2006.
Percent Per Share
Security Quantity Interest Cost Market
Favre, Inc. 2,000 shares 8% $11 $16
Brady Corp. 5,000 shares 14% 23 17
McNabb Company 4,000 shares 2% 31 24
Instructions
(a) What should be reported on Woolford’s December 31, 2006, balance sheet relative to these longterm available-for-sale securities?
On December 31, 2007, Woolford’s portfolio of available-for-sale securities consisted of the following common stocks.
Percent Per Share
Security Quantity Interest Cost Market
Brady Corp. 5,000 shares 14% $23 $30
McNabb Company 4,000 shares 2% 31 23
McNabb Company 2,000 shares 1% 25 23
At the end of year 2007, Woolford Company changed its intent relative to its investment in Favre,
Inc. and reclassified the shares to trading securities status when the shares were selling for $9 per share.
(b) What should be reported on the face of Woolford’s December 31, 2007, balance sheet relative to
available-for-sale securities investments? What should be reported to reflect the transactions above
in Woolford’s 2007 income statement?
(c) Assuming that comparative financial statements for 2006 and 2007 are presented, draft the footnote necessary for full disclosure of Woolford’s transactions and position in equity securities.
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