Reference no: EM132829599

Question -

Q1. YZ Company purchased $500,000, 10%, 5-year bonds on January 1, 20x1, with interest payable on July 1 and January 1. The market interest rate (yield) was 8% for bonds of similar risk and maturity. The market value on December 31, 20x1 was $555,000 and all bonds were sold for $507,500 on January 1, 20x2 after the second payment.

Required - Compute the bond price on January 1, 20x1, prepare the amortization schedule and record journal entries on January 1, 20x1, July 1, 20x1, December 31, 20x1 and January 1, 20x2 assuming the bond investment is classified as available-for-sale security.

Q2. As a long-term investment, Metro Equipment Company purchased 20% of Denver Supplies Inc.'s 400,000 shares for $477,500 and paid $2,500 brokerage fee at the beginning of the fiscal year of both companies (January 1, 20x1). On the purchase date, the fair value and book value of Denver's net assets were equal. During the year, Denver earned net income of $250,000 and distributed cash dividends of 25 cents per share. At year-end, the fair value of the shares is $505,000. On January 1, 20x2, Metro sold 15,000 shares of Denver's stock for $10 per share and paid $400 brokerage fee.

Required: Journal entries for XY

1. Assume no significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year and sale on January 1, 20x2.

2. Assume significant influence was acquired. Prepare the appropriate journal entries from the purchase through the end of the year and sale on January 1, 20x2.