Question

On January 1, 2020, Stellar Company purchased 12% bonds, having a maturity value of $312,000 for $335,654.22. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Stellar Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2020		$333,600		2023		$322,000
2021		$320,900		2024		$312,000
2022		$320,000

(a)		Prepare the journal entry at the date of the bond purchase.
(b)		Prepare the journal entries to record the interest revenue and recognition of fair value for 2020.
(c)		Prepare the journal entry to record the recognition of fair value for 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.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	choose a transaction date Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021	enter an account title to record transaction A	enter a debit amount	enter a credit amount
		enter an account title to record transaction A	enter a debit amount	enter a credit amount
(b)	choose a transaction date Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021	enter an account title to record interest received	enter a debit amount	enter a credit amount
		enter an account title to record interest received	enter a debit amount	enter a credit amount
		enter an account title to record interest received	enter a debit amount	enter a credit amount
		(To record interest received)
		enter an account title to record fair value adjustment	enter a debit amount	enter a credit amount
		enter an account title to record fair value adjustment	enter a debit amount	enter a credit amount
		(To record fair value adjustment)
(c)	choose a transaction date Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021	enter an account title to record transaction C	enter a debit amount	enter a credit amount
		enter an account title to record transaction C	enter a debit amount	enter a credit amount

Answer 1

S.No. Date (a) Jan. 1,20 Credit Account Titles and Explanation Debt-Investment (Available for Sale) Cash Debit 335,654.22 335,654.22 Dec. 31, 20 162 400 Cash Debt-Investment (Available for Sale)|| Interest Revenue ($335,654.22*10%) (To record interest received) 28,834.58 33,565.42 26.780.36 26,780.36 Fair Value Adjustment (Available for Sale Unrealized Holding Gain or Loss Eq ($333,600-$306,819.64) (To record fair value adjustment) (c) Dec. 31, 21 19.018.04 Fair Value Adjustment (Available for sale Unrealized Holding Gain Or Loss Equity 19,018.04

Notes Date Cash Received Interest Revenue Premium Amortized 1/1/20 31/12/20 $62,400 ($312,000/5) $62,400 Carrying Amount of Bonds $335, 654.22 $306,819.64 ($335,654.22-$28,834.58) $275,101.6 $33,565.42 ($335,654.22*109 $30,681.96 (S306,819.64*10%) $28,834 58 (62.400-$33,565.42) $31718.04 | 31/12/21 Amortized Cost Fair Value Unrealized Holding Gainor Loss $45,798.4 $275, 101.6 $320,900 Available for Sale bonds (at the end of 2021 balance of adjustment accounts should be) Previous FairValue adjustment (2020) Fair Value Adjustment (2021) $26,780.36 $19,018.04