Question

On January 1, 2020, Splish Company purchased 9% bonds having a maturity value of $250,000, for $270,502.00. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Splish Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

A) Prepare the journal entry at the date of the bond purchase.

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020

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

Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method
Date		Cash Received		Interest Revenue		Premium Amortized		Carrying Amount of Bonds
1/1/20
1/1/21
1/1/22
1/1/23
1/1/24
1/1/25

C) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020

D) Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2021

Answer 1

A)	Date	Account Titles and Explanation	Debit	Credit
	Jan. 1, 2020	Debt Investments (Held-to-Maturity)	$270,502
		Cash		$270,502
B)	Date	Cash Received	Interest Revenue	Premium Amortized	Carrying Amount of Bonds
	1/1/2020				$270,502.00
	1/1/2021	$22,500.00	$18,935.14	$3,564.86	$266,937.14
	1/1/2022	$22,500.00	$18,685.60	$3,814.40	$263,122.74
	1/1/2023	$22,500.00	$18,418.59	$4,081.41	$259,041.33
	1/1/2024	$22,500.00	$18,132.89	$4,367.11	$254,674.22
	1/1/2025	$22,500.00	$17,825.78	$4,674.22	$250,000.00
C)	Date	Account Titles and Explanation	Debit	Credit
	Dec. 31, 2020	Cash	$22,500
		Debt Investments (Held-to-Maturity)		$3,565
		Interest Revenue		$18,935
D)	Date	Account Titles and Explanation	Debit	Credit
	Dec. 31, 2021	Cash	$22,500
		Debt Investments (Held-to-Maturity)		$3,814
		Interest Revenue		$18,686