Question

On January 1, 2020, Splish Company purchased 12% bonds having a maturity value of $350,000, for $376,535.18. 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. Splish 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. (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 o for the amounts.) Account Titles and Explanation Debit Credit Date Jan. 1, 2020 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 Interest Premium Revenue Amortized Cash Received Carrying Amount of Bonds Date 1/1/20 $ 1/1/21 1/1/22 1/1/23 1/1/24 1/1/25 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 o for the amounts.) Account Titles and Explanation Debit Credit Date Dec. 31, 2020

Answer 1

	Account titles and explanation	Debit	Credit
	Investment in bonds	$376,535
	Cash		$376,535
	(Investment in bonds made)
	Date	Cash received	Interest revenue	Premium amortized	Carrying amount of bonds
	01/01/2020				$376,535
	01/01/2021	$42,000	$37,653.45	$4,346.55	$372,188
	01/01/2022	$42,000	$37,218.80	$4,781.20	$367,407
	01/01/2023	$42,000	$36,740.68	$5,259.32	$362,147
	01/01/2024	$42,000	$36,214.74	$5,785.26	$356,362
	01/01/2025	$392,000	$35,638.22	$356,361.78	$0
31-Dec-20	Cash	$42,000
	Investment in bonds		$4,347
	Interest revenue		$37,653
	(interest revenue booked and premium amortized)
31-Dec-21	Cash	$42,000
	Investment in bonds		$4,781
	Interest revenue		$37,219
	(interest revenue booked and premium amortized)

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