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Hello students, here is a question.
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On jan 1, 2011, dongle company acquires 10 % i .e.
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$4 million bonds and $3 ,807 ,853.
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The principal due on jan 1 was due on jan 1, 2014 but interested due to the annual starting for dec 31, 2011.
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The yield rate of the bond is 12%.
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On july 1, 2011, dongle company changes a business model which is accurately invested in the bond.
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Amortized should be reclassified to held trending security of a reclassification date.
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The bonds were quoted to 102, 103, 104 on july 1, 2011.
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Dec 31, 2011 and jan 1, 2012 respectively.
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How much gain on loss reclassification on jan 2, 2012? we have four options given here.
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We have to choose the right option from this.
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So, let us solve this problem.
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First, we need to amortize the cost for july 1, 2011.
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So, this will be the reclassification date.
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So, to do this, we need to calculate the interest, income and the amortization of a discount for first six months.
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So, the interest of income for first six months will be interest income is equal to interest sum is equal to carrying amount carrying amount to yield rate into time.
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So, in this case, it would be the values are $3 ,807 ,853 into 12 % into 6 divided by 12.
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Which gives us $228 ,471.
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So, the amortization discount will be amortization discount.
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So, that will be $4 ,000 ,000 into 6 divided by 12 which gives us $200 ,000 sorry $28 ,471.
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So, now we can amortize the cost of a bond for july 1 by adding up both the carrying amount and the amortization discount...