Question

On January 1, 2017, Teal Company purchased 8% bonds having a maturity value of $440,000, for $477,069.47. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Teal Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category

Prepare the journal entry at the date of the bond purchase

Prepare a bond amortization schedule

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018

Answer 1

1).
Date	Account Titles	Debit	Credit
		$	$
1-Jan-17	Bonds Receivable	$ 440,000.00
	Premium on bonds receivable	$   37,069.47
	Cash		$ 477,069.47

2). Bond Amortization Schedule:
Date	Cash received	Interest revenue	Premium amortized	Carrying amount of bonds
	(440000*8%)	$	$	$
1/1/2017				$ 477,069.47
1/1/2018	$    35,200.00	$   28,624.00	$      6,576.00	$ 470,493.47
1/1/2019	$    35,200.00	$   28,229.61	$      6,970.39	$ 463,523.08
1/1/2020	$    35,200.00	$   27,811.38	$      7,388.62	$ 456,134.46
1/1/2021	$    35,200.00	$   27,368.07	$      7,831.93	$ 448,302.53
1/1/2022	$    35,200.00	$   26,897.47	$      8,302.53	$ 200,000.00

3). Journal entry to record interest revenue:
Date	Account Titles	Debit	Credit
		$	$
31-Dec-17	Interest receivable	$   35,200.00
	Interest revenue		$    28,624.00
	Premium on bonds receivable		$      6,576.00

4). To record for 2018:
Date	Account Titles	Debit	Credit
		$	$
1-Jan-18	Cash	$   35,200.00
	Interest receivable		$    35,200.00
31-Dec-18	Interest receivable	$   35,200.00
	Interest revenue		$    28,229.61
	Premium on bonds receivable		$      6,970.39