(100 points) TankCo buys debt securities for $600 at the beginning of year 1. Effective annual interest rate on the debt at the time of purchase = 10%. Interest accrued = Amortized cost * Interest...

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(100 points) TankCo buys debt securities for $600 at the beginning of year 1.
Effective annual interest rate on the debt at the time of purchase = 10%.
Interest accrued = Amortized cost * Interest rate
Cash received at the end of Year 1= 40.
If cash received is more than the interest accrued, then the excess is treated as return of principal and reduces amortized cost, i.e., the bond amortizes. If cash received is less than the interest accrued, then the deficit is added to the amortized cost, i.e., the bond accretes.
Market value at the end of Year 1 after cash has been received = $630.
Cash received at the end of Year 2 = 42.
Market value at the end of Year 2 after cash has been received = $610.
The security is sold for $600 in cash on January 2, Year 3.
Ignore interest for Year 3.
Ignore taxes.

Year 1Year 2Year 3
Net income if classified as trading security
Net income if classified as available-for-sale security
Answered 1 days AfterMay 08, 2021

Solution

Khushboo answered on May 09 2021
22 Votes
Sheet1
ParticularsYear 1Year 2Year 3
Net income if classified as trading...
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