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Chapter 17 Accounting Problems

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CHAPTER 17

Investments

EXERCISE 17-2 (10–15 minutes)

(a) January 1, 2013

Debt Investments $300,000 Cash $300,000

(b) December 31, 2013

Cash $36,000 Interest Revenue $36,000

(c) December 31, 2014

Cash $36,000 Interest Revenue $36,000

EXERCISE 17-5 (20–30 minutes)

(a) Schedule of Interest Revenue and Bond Discount Amortization
Straight-line Method
9% Bond Purchased to Yield 12%
|Date |Cash Received |Interest Revenue |Bond Discount Amortization |Carrying Amount of Bonds |
|1/1/13 |— |— |— |$185,589 |
|12/31/13 |$18,000 |$22,804 |$4,804 |$190,393 |
|12/31/14 |18,000 |$22,804 |$4,804 |$195,197 |
|12/31/15 |18,000 |$22,803 |$4,803 |200,000 |

**($200,000 – $185,589) ÷ 3 = $4,804 **Rounded by $1.

(b) Schedule of Interest Revenue and Bond Discount Amortization
Effective-Interest Method
9% Bond Purchased to Yield 12%
|Date |Cash Received |Interest Revenue |Bond Discount Amortization |Carrying Amount of Bonds |
|1/1/13 |— |— |— |$185,589.00 |
|12/31/13 |$18,000 |$22,270.68 |$4,270.68 |$189,859.68 |
|12/31/14 |18,000 |$22,783.16 |$4,783.16

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