CHAPTER 8—LONG-TERM INVESTMENTS
Insurance companies and pension plans hold large quantities of bond investments. Viking, Inc. purchased
$3,900,000 of 4.0% bonds of Sherman, Inc. for 114 on January 1, 2016. These bonds pay interest on January 1
and July 1 each year. They mature on January 1, 2020. At October 31, 2016, the end of the company’s fiscal
year, the market price of the bonds is 101.
1. Journalize Viking’s purchase of the bonds as a long-term investment on January 1, 2016, (to be held to
maturity), receipt of cash interest, and amortization of the bond premium at July 1, 2016. The straightline method (S/L) is appropriate for amortizing the bond investment. Show debits first, then credits.
Record the journal entries for the purchase of the bonds on January 1, 2016.
DATE
1/1/2016 ACCOUNT TITLE
Held-to-Maturity Investment in Bonds
Cash
To purchase bond investment. DEBIT CREDIT DEBIT CREDIT DEBIT CREDIT Record the receipt of cash interest at July 1, 2016.
DATE
7/1/2016 ACCOUNT TITLE
Cash
Interest Revenue
To receive semiannual interest. Record the amortization of the bond premium at July 1, 2016.
DATE
7/1/2016 ACCOUNT TITLE
Interest Revenue
Held-to-Maturity Investment in Bonds
To amortize premium on bond investment. 2. Journalize Viking’s accrual of interest receivable and amortization of premium on October 31, 2016.
Round your answer to the nearest whole number. Show debits first, then credits.
Record the accrual of interest receivable on October 31, 2016.
DATE
ACCOUNT TITLE
10/31/2016 Interest Receivable
Interest Revenue
To accrue interest revenue. DEBIT CREDIT DEBIT CREDIT Record the amortization of the bond premium on October 31, 2016.
DATE
ACCOUNT TITLE
10/31/2016 Interest Revenue
Held-to-Maturity Investment in Bonds
To amortize premium on bond investment. 3. Show all financial statement effects of this long-term bond investment on Viking’s Balance Sheet at
October 31, 2016 and Income Statement for the year ending October 31, 2016.
Viking, Incorporated
Balance Sheet (Partial)
October 31, 2016
ASSETS
Current Assets:
Interest Receivable
Long-term Assets:
Held-to-Maturity Investment in Bonds Viking, Incorporated
Income Statement (Partial)
Year Ended October 31, 2016
Other Revenues:
Interest Revenue What amount is the Debit to Held-to-Maturity Investment in Bonds on January 1,
2016?
2. What amount is the Debit to Cash to record the receipt of cash interest at July 1, 2016?
3. What amount is the Debit to Interest Revenue to record the amortization of the bond
premium at July 1, 2016?
4. What amount is the Debit to Interest Receivable to record the accrual of interest
receivable on October 31, 2016?
5. What amount is the Debit to Interest Revenue to record the amortization of the bond
premium on October 31, 2016?
1. 6. What is the amount for Interest Receivable under Current Assets in the Balance Sheet
at October 31, 2016?
7. What is the amount for Held-to-Maturity Investment in Bonds under Long-term Assets
in the Balance Sheet at October 31, 2016?
8. What is the amount for Interest Revenue under Other Revenues in the Income
Statement at October 31, 2016?


 

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