Question

On January 1, 2014, Hooker Chemical purchased 9-year, 9% bonds having maturity a value of $425,000. Interest is paid annually on December 31 and the bonds provide the bondholders a 8% yield. Hooker Chemical uses the effective-interest method to amortize discount or premium.

At the time of acquisition, the bonds were classified as trading. The fair value of the bonds on December 31, 2017 is $437,000. The fair value of the bonds as of December 31 of the immediately preceding year (prior measurement date) was $421,000.

Based on the foregoing facts, what is the balance in the Securities Valuation Account for this security as of December 31, 2017? (Note: If the balance is a credit balance, enter a minus sign '-' prior to the amount. If the balance is a debit balance, enter the amount as an absolute number.)

**Please show steps

Answer 1

FV	$425,000			Year	Cash Interest	Interest Revenue(8% x CV)	Premium amortization	Carrying Value
PMT	38,250	(425000 x 9%)			A	B	C = A-B
NPER	9			Jan 1, 2014				$ 451,549.27
Rate	8%			Dec 31, 2014	38,250.00	36,123.94	2,126.06	449,423.21
PV	($451,549.27)			Dec 31, 2015	38,250.00	35,953.86	2,296.14	447,127.07
	=PV(8%,9,38250,425000)			Dec 31, 2016	38,250.00	35,770.17	2,479.83	444,647.23
				Dec 31, 2017	38,250.00	35,571.78	2,678.22	441,969.01
So price of bonds is $451,549.27				Dec 31, 2018	38,250.00	35,357.52	2,892.48	439,076.53
Premium	$26,549.27	(451549.27-425000)		Dec 31, 2019	38,250.00	35,126.12	3,123.88	435,952.66
				Dec 31, 2020	38,250.00	34,876.21	3,373.79	432,578.87
				Dec 31, 2021	38,250.00	34,606.31	3,643.69	428,935.18
				Dec 31, 2022	38,250.00	34,314.81	3,935.19	425,000
Fair Value as on December 31, 2016 is $421,000 and Carrying Value was 444,647.23
Securities valuation account Balance (444,647.23 - 421,000) $23,647.23 Credit
Fair Value as on December 31, 2017 is $437,000 and Carrying Value was 441,969.01
Securities valuation account Balance (441,969.01 - 437,000) $4,969.01 Credit
So Ans is	-$4,969.01