On December 31, 2015, Martin Corp invested in Marlin’s 5-year, $200,000 bond with a 5% interest rate...

Question

On December 31, 2015, Martin Corp invested in Marlin’s 5-year, $200,000 bond with a 5% interest rate for $191,575. The bond pays semiannual interest on June 30^th and December 31^st. The fair values of the bonds at the end of 2016~2018 are $194,500, $194,200, and $195,750. Martin sold its investment in Marlin’s bond on July 1, 2019 at 98 ½ (i.e. selling price is = 98.5% of the face value). Please answer all following questions using Excel Template.

A. What is the market interest rate for Marlin’s bond?

B. Prepare an amortization schedule related to the bond investment in Marlin. How does Martin’s investment classification (as HTM, AFS, or Trading) influence this amortization schedule?

C. Assuming the bonds are classified as held-to-maturity investments,

· Prepare the journal entries on December 31, 2015

· Prepare the journal entries related to the bond on December 31, 2016.

· Prepare the journal entries related to the bond on December 31, 2018.

· Prepare the journal entries related to the bond on July 1 2019.

D. Assuming the bonds are classified as AFS investment, prepare the journal entries on aforementioned dates.

E. Assuming the bonds are classified as Trading investment, prepare the journal entries on aforementioned dates.

Question 2.

Sandford Co. sells bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, XXXXXXXXXXPertinent information follows:


	Par value of the bonds	$ 500,000
	Stated interest rate	10%
	Bond yield rate	12%

A. Calculate the bond price and bond discount using EXCEL function.

B. Prepare amortization schedule

C. Prepare journal entries for year 2017 and 2018.

excelproject3-jf4hvcp5.docx excel-projecttemplate3-kjcx3bgv-5ki3cfhi.xlsx

Kiran · Accepted Answer

Q1- Template
	A. Calculate the market interest rate
	Market interest rate=		6%
	B. Prepare the Amortization schedule
	Date	Interest Received	Interest Revenue	Amortization of Discount	Discount Balance	Book Value
	Dec. 31, 2015				8,425	191,575	FVA - AFS
	Jun. 30, 2016	5,000	5,747	747	7,678	192,322
	Dec. 31, 2016	5,000	5,770	770	6,908	193,092
	Jun. 30, 2017	5,000	5,793	793	6,115	193,885
	Dec. 31, 2017	5,000	5,817	817	5,299	194,701
	Jun. 30, 2018	5,000	5,841	841	4,458	195,542
	Dec. 31, 2018	5,000	5,866	866	3,591	196,409
	Jun. 30, 2019	5,000	5,892	892	2,699	197,301
	Dec. 31, 2019	5,000	5,919	919	1,780	198,220
	Jun. 30, 2020	5,000	5,947	947	834	199,166
	Dec. 31, 2020	5,000	5,975	975	-141	200,141
	Question: Prepare an amortization schedule related to the bond investment in Marlin.  How does Martin’s investment classification (as HTM, AFS, or Trading) influence this amortization schedule?
	Answer:  
	The Investment classified as HTM will be recorded at cost price and with discount received. The discount account will be amortized as the interest is received. 
	C, D, E: Prepare Journay Entries 
	Held-to-Maturity						AFS						Trading
	Date	Debit	Credit	Debit Amount	Credit Amount		Date	Debit	Credit	Debit Amount	Credit Amount		Date	Debit	Credit	Debit Amount	Credit Amount
	12/31/15	Investment in Bonds		191,575			12/31/15	Available for Sale Securities		191,575			12/31/15	Trading Securities		191,575
			Cash		191,575				Cash		191,575				Cash		191,575
	6/30/16	Cash		5,000			Jun. 30, 2016	Cash		5,000			6/30/16	Cash		5000
		Investment in Bonds		747					Interest Revenue		5,

On December 31, 2015, Martin Corp invested in Marlin’s 5-year, $200,000 bond with a 5% interest rate for $191,575. The bond pays semiannual interest on June 30 th and December 31 st . The fair values...

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