Question

On January 1, 2020, Monty Company purchased 10% bonds having a maturity value of $260,000, for $280,761.26. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Monty Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

1. Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

2. Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

3. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020. (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

4. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021. (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Requirement 1

Date	Particulars	Debit ($)	Credit ($)
Jan 1 2020	Debt Investments (Held to maturity)	280,761
	Cash		280,761
	(To record bond purchase)

Requirement 2

Effective interest method

10% bonds sold to yield 8%

Date	Cash received	Interest revenue	Premium amortized	carrying amount of bonds
1.1.20				280,761.26
12.31.20	26,000.00	22,460.90	3,539.10	277,222.16
12.31.21	26,000.00	22,177.77	3,822.23	273,399.93
12.31.22	26,000.00	21,871.99	4,128.01	269,271.93
12.31.23	26,000.00	21,541.75	4,458.25	264,813.68
12.31.24	26,000.00	21,185.09	4,814.91	260,000.00

Cash received = 10% of 260,000

Interest revenue = last carrying amount X 8%

Requirement 3

Date	Particulars	Debit ($)	Credit ($)
31 Dec 2020	Cash	26,000
	Debt Instruments (Held to maturity)		3539.1
	Interest revenue		22,460.9
	(To record interest and amortization for 2020)

Requirement 4

Date	Particulars	Debit ($)	Credit ($)
31 Dec 2021	Cash	26,000
	Debt Instruments (Held to maturity)		3822.23
	Interest revenue		22177.77
	(To record interest and amortization for 2021)

kindly upvote