Question

Problem 17-02 On January 1, 2020, Vaughn Company purchased $440,000, 10% bonds of Aguirre Co. for $407,614. The bonds were purchased to yield 12% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Vaughn Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, Vaughn Company sold the bonds for $409,094 after receiving interest to meet its liquidity needs. Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (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

Answer 1

15 a) 407614 Jan-01 Debt investments Cash 407614 19 b) Ron 20 Date Interest revenue Carrying (opening baalnce Bond Discount Amount of Cash received(440000*10%*6/12) *12%*6/12) Amortization Bonds 01-01-17 407614 07-01-17 22000 24457 2457 410071 01-01-18 22000 24604 2604 412675 07-01-18 22000 24761 2761 415436 01-01-19 22000 2926 418362 07-01-19 22000 25102 3102 421464 01-01-20 22000 25288 3288 424752 07-01-20 22000 25485 3485 428237 01-01-21 22000 25694 3694 431931 07-01-21 22000 25916 3916 435847 01-01-22 22000 26153 4153 440000 220000 252386 32386 24926 32 total

34 c) 35 01-01-17 Cash debt investments Interest revenue 22000 2457 24457 31-12-17 Cash debt investments Interest revenue 22000 2604 24604 10438 31-12-18 Unrealised Holding Gain or Loss - Equity Fair value adjustment 10438 Securities Agguire Previous balance Fair value adjustment Unrealised Fair value Gain/(loss) 418362 411094 -7268 3170 -10438 Cr

01-01-19 Cash Loss on sale of investments Debt investments 409094 9268 418362 Selling price of bonds Less:amortized cost Realsied loss on sale of investments 409094 -418362 -9268