Accounting for debt and share investment - Assignment Example

ACCOUNTING FOR DEBT AND SHARE INVESTMENTS The table below shows the bond amortization schedule using the effectiveinterest rate method. The discount of (68000-67069) = 931 is amortized for the period of the bond. Since the interests are paid semi annually, the interests rates used are divided by two. At the end of the period, the book value of the bond will be equal to the face value of the bond (Kieso & Weygandt, 1998).ADate BInterest receivable(3.4%*face value)Cinterest income (3.6%*book value)D amortization of bond discount(C-B)EBalance in bond Discount accountFBook value of bond(68000-E)Debit cashCredit interest incomeDebit bond discountJuly 1 201193167069Dec 31 20112312241410282967171July 1 20122312241810672367277Dec 31 20122312242211061367387Journal entries for the transactionsFeb 1 6.

23% HTM 70000 Cash 70000Feb 21 Shares at Hilton LTD 68040 Cash 68040April 2 Bank 70717 6.23% HTM 70000 Interest income (60/365*0.

0623*70000) 717April 15 Share in Elder Corp 80425 Cash 80425April 20 Share in venture Ltd 47820 Cash 47820July 1 6.8% barker Inc. Bond 68000 Cash 67069 Bond discount 931July 15 Cash 1800 Dividend income 1800July 28 Cash 44300 Loss in sale of investment 1060 Shares at Hilton LTD 45360Dec 1 Cash 600 Dividend income 600Dec 31 Cash 2312 Interest income 2312Feb 16 Cash 25100 Shares in Hilton ltd 22680 Profit on sale of investments 2420 On the 31st December, the investments will be stated in the balance sheet at the lower of fair value and cost.

It therefore means that the amount to be reported is the lower of the two to avoid overstatement in the financial statements (Kieso & Weygandt, 1998). Any gain realized on the difference of fair value and cost cannot be reported in the income statement of the businesses. On the contrary, any loss must be provided for accordingly as demanded by the accounting policies and principles.Fair values of the investments Book valuesHilton shares 2000*12.6=25200 68040-45360= 22680(B/S)Elder shares investment 8200*10.

3=84460 80425(B/S)Venture shares 3.2*14000 = 44800(B/S) 47820Barker bond 98.65*680 = 67082 67069(B/S)Musli Inc. balance sheetAs at 31 December 2011Non current assetsShares in Hilton Ltd 226080Elder shares investment 80425Investment Venture shares 44800Barker bond 67069Current assetsInterests receivable 2312ReferenceKieso, D. E., & Weygandt, J. J. (1998). Intermediate Accounting (9th ed.). New York: Wiley.