PART A
On July 1, 2017, FMT purchased thousand shares of the following bonds issued by Apple.
APPLE INC.DL-NOTES 2017(17/27)
Coupon rate: 3%
Maturity Date: 6/30/2027**
Payment Frequency: Semi-annual (June 30 and December 31) **
Face value per share: $100
The total face value of the investment is $100,000. On the purchase day, the yield (market rate) was 2.5%.
The market prices per share for the bonds on the last trading day of each year are as the following:
2017: $102.13
2018: $103.31
2019: $107.75
2020: $105.17
2021: $112.141
**Dates are adjusted to be aligned with fiscal years.
(Show your answers in Dollars, rounded to two decimal points when necessary. Ignore tax implications.)
- Prepare an amortization table for the investment in Apple’s bonds (from 2017 to 2027).
- Prepare the following table.
| Date | Amortized Cost | Fair Value | Fair Value Adjustment, desired Balance | Change to be made to Fair Value Adjustment |
| 12/31/2017 | $102130 | |||
| 12/31/2018 | $103310 | |||
| 12/31/2019 | $107750 | |||
| 12/31/2020 | $105170 | |||
| 12/31/2021 | $112141 |
- Make journal entries and prepare the following summary table for 2017-2020, assuming the bonds were classified as held-to-maturity (HTM) securities.
| YEAR: | 2017 | 2018 | 2019 | 2020 |
| Income Statement Effect | ||||
| Interest Revenue | ||||
| Gain (Loss) on Investment (Unrealized-NI) | ||||
| Gain (Loss) on sale (Realized-NI) | ||||
| Net Income | ||||
| Gain (Loss) on Investment (Unrealized-OCI) | ||||
| Reclassification adjustment (OCI) | ||||
| Other Comprehensive Income (OCI) | ||||
| Comprehensive Income (CI) | ||||
| Balance Sheet Balances | ||||
| Amortized Cost | ||||
| Fair Value Adjustment balance | ||||
| Investment in Bonds (net book value) | ||||
| Cash Flow Statement Effect | ||||
| Cash Flow from operating activities | ||||
| Cash Flow from investing activities |
- Make journal entries and prepare the summary table for 2017-2020 (as in 3)), assuming the bonds were classified as trading securities.
- Make journal entries and prepare the summary table for 2017-2020 (as in 3)), assuming the bonds were classified as available for sale securities.
PART B
On Jan 1, 2019, FMT purchased thousand shares of the following bonds issued by Mint.
Coupon rate: 3%
Maturity Date: 12/31/2025
Payment Frequency: Semi-annual (June 30 and December 31) **
Face value per share: $100
The total face value of the investment is $100,000. On the purchase day, the yield (market rate) was 3.58%.
The market prices per share for the bonds on the last trading day of each year are as the following:
2019: $97.75
2020: $91.17
2021: $95.141
On Jan 2, 2022, FMT sold all the shares of the Mint’s bonds at $97 per share.
(Show your answers in Dollars, rounded to two decimal points when necessary. Ignore tax implications.)
- Prepare an amortization table for the investment in Mint’s bonds (from 2019 to 2025).
- Prepare the following table.
| Date | Amortized Cost | Fair Value | Fair Value Adjustment, desired Balance | Change to be made to Fair Value Adjustment |
| 12/31/2019 | ||||
| 12/31/2020 | ||||
| 12/31/2021 | ||||
| 1/2/2022 | 97000 |
- Make journal entries and prepare the following summary table for 2019-2022, assuming the bonds were classified as held-to-maturity (HTM) securities.
| YEAR: | 2019 | 2020 | 2021 | 2022 |
| Income Statement Effect | ||||
| Interest Revenue | ||||
| Gain (Loss) on Investment (Unrealized-NI) | ||||
| Gain (Loss) on sale (Realized-NI) | ||||
| Net Income | ||||
| Gain (Loss) on Investment (Unrealized-OCI) | ||||
| Reclassification adjustment (OCI) | ||||
| Other Comprehensive Income (OCI) | ||||
| Comprehensive Income (CI) | ||||
| Balance Sheet Balances | ||||
| Amortized Cost | ||||
| Fair Value Adjustment balance | ||||
| Investment in Bonds (net book value) | ||||
| Cash Flow Statement Effect | ||||
| Cash Flow from operating activities | ||||
| Cash Flow from investing activities |
- Make journal entries and prepare the summary table for 2019-2022 (as in 3)), assuming the bonds were classified as trading securities.
- Make journal entries and prepare the summary table for 2019-2022 (as in 3)), assuming the bonds were classified as available for sale securities.
PART C
JP buys and sells securities expecting to earn profits on short-term differences in price. The following selected transactions relate to JP’s investments in trading securities during 2022. The company’s fiscal year ends on December 31. No trading securities were held by JP as of Jan 1, 2022.
2022
Jan 1) Purchased 10,000 shares of MSFT (Microsoft) stocks for $300 per share
Jul 1) Purchased 800 shares of 5% XOM (Exxon) bonds with a face value $100 per share, dated July 1, 2021, to hold as trading securities. The market rate was 8%. The bonds mature in 5 years. Interest is received semi-annually on June 30 and December 31.
Aug 3) Purchased 10,000 shares of MSFT stocks for $250 per share
13) Received cash dividend $5,000 from MSFT.
Sep 1) Purchased 10,000 shares of GOOGL (Alphabet) stocks for $200 per share
15) Sold 15,000 shares of MSFT stocks for $270 per share.
Oct 1) Purchased 1,000 shares of SBUX (Starbucks) stocks for $80 per share
20) Purchased 8,000 shares of SBUX stocks for $75 per share
Nov 1) Sold 2,500 shares of GOOGL stocks for $230 per share
15) Sold 2,500 shares of SBUX stocks for $85 per share
Dec 31) Market prices for trading securities are as follows:
MSFT: $290 per share, SBUX: $90 per share, GOOGL: $250 per share, XOM bonds: $80 per share
Assume stocks are sold First-in, first-out.
2023
May 1) Sold 3,000 shares of SBUX stocks for $100 per share
July 1) Sold all shares of XOM bonds at $90 per share.
Aug 1) Purchased 10,000 MSFT stocks for $350 per share
Sep 1) Sold 5,000 MSFT stocks for $320 per share
Oct 1) Sold 1,000 GOOGL stocks for $270 per share
Nov 1) Purchased 6,000 SBUX stocks for $105 per share
Dec 31) Market prices for trading securities are as follows:
MSFT: $345 per share, SBUX: $95 per share, GOOGL $300 per share
Assume stocks are sold First-in, first-out (FIFO).
(Answer in $dollars. Ignore tax implications.)
- Set up amortization tables for XOM bonds.
- Fill in the following tables for each security (answer in $dollars).
| XOM | Amortized Cost | Fair Value | FVA, desired Balance | Change to be made to FVA |
| 12/31/2022 | ||||
| 7/1/2023 | ||||
| MSFT | COST | Fair Value | FVA, desired Balance | Change to be made to FVA |
| 12/31/2022 | ||||
| 12/31/2023 | ||||
| GOOGL | COST | Fair Value | FVA, desired Balance | Change to be made to FVA |
| 12/31/2022 | ||||
| 12/31/2023 | ||||
| SBUX | COST | Fair Value | FVA, desired Balance | Change to be made to FVA |
| 12/31/2022 | ||||
| 12/31/2023 |
- Prepare journal entries for 2022-2023.
- Re-make the above tables with the cost-basis assumption that stocks are sold Last-in, First-out (LIFO).
