No More Worries!

image Our orders are delivered strictly on time without delay

Paper Formatting

  • Double or single-spaced
  • 1-inch margin
  • 12 Font Arial or Times New Roman
  • 300 words per page

No Lateness!

image Our orders are delivered strictly on time without delay

Our Guarantees

image

  • Free Unlimited revisions
  • Guaranteed Privacy
  • Money Return guarantee
  • Plagiarism Free Writing

OptimisticOutcomes Inc.

On January 1, 2022, BeamingBooks Bureau sold $1,250,000 of 7% bonds to OptimisticOutcomes Inc. The bonds mature on December 31, 2025 (4 years). For bonds of similar risk and maturity, the market yield was 8%. Interest is paid semiannually on June 30 and December 31.

OptimisticOutcomes Enterprise purchased the bonds as an investment and plans to hold the bonds for approximately 2 years.

The fair value of the bonds at 12/31/22 was $1,305,000.

OptimisticOutcomes’s fiscal year end is December 31 and 2022 was its first year of business.

Required:

  1. Prepare the fair value adjusting entry for OptimisticOutcomes Enterprise as of 12/31/22. Show your work.

  2. Show or describe exactly and specifically what will appear on the Balance Sheet of OptimisticOutcomes Enterprise as of 12/31/22, related to these bonds.

  3. Show or describe exactly and specifically what will appear on the Income Statement of OptimisticOutcomes Enterprise for the year ending 12/31/22.

  4. Prepare the journal entries OptimisticOutcomes Enterprise should make on the following dates related to this investment. Assume that the fair value of these bonds is $950,000 at 12/31/23. Show your work.

find the cost of your paper

Sample Answer

 

 

1. Fair Value Adjusting Entry as of 12/31/22:

To reflect the change in fair value of the bonds, OptimisticOutcomes needs to adjust their accounts.

Debit: Investment in BeamingBooks Bonds $55,000 Credit: Unrealized Gain on Investment in BeamingBooks Bonds $55,000

Calculation:

Fair Value at 12/31/22 – Cost Price = $1,305,000 – $1,250,000 = $55,000

2. Balance Sheet as of 12/31/22:

  • Current Assets:
    • Investment in BeamingBooks Bonds: $1,305,000 (fair value, not cost)

Full Answer Section

 

 

 

  • Non-Current Assets:
    • N/A (Bonds mature in less than 4 years)

3. Income Statement for the year ending 12/31/22:

  • Other Income:
    • Interest income from BeamingBooks Bonds: $1,250,000 * 7% * 6/12 = $43,750 (6 months’ interest)

4. Journal Entries for 12/31/23:

a) Interest Receipt:

Debit: Cash $43,750 Credit: Interest Receivable $43,750

b) Fair Value Adjustment:

Debit: Unrealized Gain on Investment in BeamingBooks Bonds $105,000 Credit: Investment in BeamingBooks Bonds $105,000

Calculation:

New Fair Value at 12/31/23 – Previous Fair Value = $950,000 – $1,305,000 = -$355,000 (negative value indicates a loss)

c) Interest Revenue:

Debit: Interest Receivable $43,750 Credit: Interest Income $43,750

d) Unrealized Loss on Disposal:

Debit: Loss on Disposal of Investment $355,000 Credit: Investment in BeamingBooks Bonds $355,000

Note:

  • Assume semiannual interest payments of $43,750 (calculated as Cost Price * Coupon Rate * 6/12) are received on June 30th and December 31st of each year.
  • The negative fair value adjustment at 12/31/23 shows a decrease in the bond’s value, leading to an unrealized loss recorded on the income statement.

This question has been answered.

Get Answer

[ordersys_quote]

Satisfaction Guaranteed

image

  • Research Paper Writing
  • Essay Writing
  • Dissertation Writing
  • Thesis Writing

Why Choose Us

image

  • Money Return guarantee
  • Guaranteed Privacy
  • Written by Professionals
  • Paper Written from Scratch
  • Timely Deliveries
  • Free Amendments