Question

On January 1, 2020, Crane Company purchased 13% bonds, having a maturity value of $321,000 for $344,727.36. The bonds provide the bondholders with a 11% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Crane 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 $342,600 2023 $330,200 2021 $329,400 2024 $321,000 2022 $328,400 (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 O for the amounts.)

Answer 1

Answoro @prepare the journal entry at the date of the bond purchase : Date Account Titles to Explanation Debit (f) eredia (6) on 2020 investment $344,787.36 cash. $344,7273 1. prepave Jouma enties to record interest revenue and recognition of 1. fain value for 2000 : Date | Account Titles & Explanation Debit CE ereditch) Dec 31, 2020 cash. (331,000x130) __$44730 intestment $ 3,809.99 interest revenue (344727:36%0.1) fair value adjustment __ $1,682.63 Lunrealized holding goin' dess income $1,682.63 -> $342600.00-$34091734 = $1,682.63. $37.920.01 Account Titles &c. Explanation Debit.c) | eveditch) Dec 31, 2001. unrealized holding gainless income. $8,470.91| ofan vakie adjustment $8940.91 =X3a9400.00+336688-28)= (7 88.28 +1684 63) = $ 8970191.

@ schedule de interesat_revenue and bord premium amortization Effective interest method & - 13% bond sold to yield 11t. . cash rewired Premium amortiald interest revenue carrying amount to bandy olu[2020 1344,727.36 31/12/2020 $ 41,130. 37,920.01 $31809.99 | $340,917-37 13,13./2021 $ 41730 $ 37,500.91 14.299.09 3 36,688.98 12 $41,730 _ 373035.31 $4,694.29 3 34,993-99 26,783.33 41,730 3 5,946.17 41,730 5,783.83 | $320,999.50 cash received = $41,730 => interest revenue = comrying amount to bends x 17. 5 premium a morte de interest revenue Cask received = canying amount to bonds = previous carrying to bridge - Picmium amalized.