Question

On January 1, 2020, Blue Company purchased 8% bonds having a maturity value of $320,000, for $346,959.62. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Blue Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Part 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.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020	enter an account title to record the transaction on January 1, 2020	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on January 1, 2020	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

Part 2

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		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places
1/1/21		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places
1/1/22		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places
1/1/23		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places
1/1/24		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places
1/1/25		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 2 decimal places

eTextbook and Media

List of Accounts

Part 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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020	enter an account title to record the transaction on December 31, 2020	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2020	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2020	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

Part 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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2021	enter an account title to record the transaction on December 31, 2021	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2021	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2021	enter a debit amount	enter a credit amount

Answer 1

Part 1:

Date	Account title and Explanation	Debit	Credit
Jan 1,2020	Investment in bonds	$346,959.62
	Cash		$346,959.62
	[To record bonds purchase]

Part 2:

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				$346,959.62
1/1/21	$25,600.00	$20,817.58	$4,782.42	$342,177.20
1/1/22	$25,600.00	$20,530.63	$5,069.37	$337,107.83
1/1/23	$25,600.00	$20,226.47	$5,373.53	$331,734.30
1/1/24	$25,600.00	$19,904.06	$5,695.94	$326,038.36
1/1/25	$25,600.00	$19,562.30	$6,037.70	$320,000.66

Cash received = $320,000 x 8% = $25,600

Interest revenue = Preceding carrying amount of bonds x 6%

Premium amortized = Cash received - Interest revenue

Carrying amount of bonds = Preceding carrying amount of bonds - Premium amortized

Part 3:

Date	Account title and Explanation	Debit	Credit
Dec 31,2020	Interest receivable	$25,600.00
	Interest revenue		$20,817.58
	Investment in bonds		$4,782.42
	[To record interest revenue and amortization]

Part 4:

Date	Account title and Explanation	Debit	Credit
Dec 31,2021	Interest receivable	$25,600.00
	Interest revenue		$20,530.63
	Investment in bonds		$5,069.37
	[To record interest revenue and amortization]