[rafiv900]

On April 1, year 1, Saxe, Inc. purchased $200,000 face

value, 9% US Treasury Notes for $198,500, including accrued

interest of $4,500. The notes mature July 1, year 2, and pay

interest semiannually on January 1 and July 1. Saxe uses the

straight-line method of amortization and intends to hold the

notes to maturity. Saxe does not elect the fair value option

for recording the securities. In its October 31, year 1 balance

sheet, the carrying amount of this investment should be

a. $194,000

b. $196,800

c. $197,200

d. $199,000

Solution: B

Held-to-maturity securities are to be carried at

amortized cost. Therefore, the investment is recorded on 4/1/

Y1 at its cost of $194,000 ($198,500 less accrued interest of

$4,500). The carrying amount is calculated as cost plus amortized

discount, which at 10/31/Y1 is $196,800 [$194,000 +

($6,000

× 7/15)].

Journey Started - June 2015
FAR - TBD
AUD - January 20, 2016
BEC - TBD
REG - TBD

[FAR_WARS]

to purchase note:

investment 200 (face)

int rcble 4.5

---

cash 198.5

---

discount 6 (plug)

*cv= 200-6=194

to calc SL amtzn:

6 discount * 7/15 months

=2.8 amortized, 3.2 unamortized

*new cv=200-3.2 unamortized discount=196.8

or

194+2.8 amortized discount= 196.8

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Author]

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