Determine the income and unrealized holding gain

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Reference no: EM13519280

On January 1, 2000, $1,000,000 of 10 percent debenture bonds were acquired by Means Corporation at $927,908, which would yield a 12 percent rate of return. The bonds mature on December 31, 2004. Interest is paid annually on December 31. Means Corporation classifies these securities as available for sale securities. Shown below are the effective interest rate and market value of the securities at various dates.

Date

Effective Interest

Market Value

December 31, 2000

11%

$968,975

December 31, 2001

9%

$1,025,310

December 31, 2002

12%

$966,195

December 31, 2003

9%

$1,009,173

Required:

(a) Using the method suggested by Kathryn Means (i.e., use the current interest rate for the recognition of income and determination of fair value with the holding gain component going to owners' equity), determine the income and unrealized holding gain components for the years 2000 through 2004 (assume that the interest rate change occurs on each December 31).

(b) Make the entries that result from assuming that these debenture bonds were Means Corporation's only available for sale securities.

Reference no: EM13519280

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