Question

Exercise 17-03 On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000, for $322,744.44. 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. Hi and Lois 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.) Debit Credit Date Account Titles and Explanation Jan. 1, 2020

Answer 1

To record bond purchase:

Date	Account title and Explanation	Debit	Credit
Jan 1,2020	Investment in bonds	$322,744.44
	Cash		$322,744.44
	[To record purchase of bonds]

Amortization table:

Date	Cash Received	Interest Revenue	Premium Amortized	Carrying Amount of Bonds
1/1/20				$322,744.44
1/1/21	$36,000.00	$32,274.44	$3,725.56	$319,018.88
1/1/22	$36,000.00	$31,901.89	$4,098.11	$314,920.77
1/1/23	$36,000.00	$31,492.08	$4,507.92	$310,412.85
1/1/24	$36,000.00	$31,041.28	$4,958.72	$305,454.13
1/1/25	$36,000.00	$30,545.41	$5,454.13	$300,000.00

Entry on Dec 31,2020 & Dec 31,2021:

Date	Account title and Explanation	Debit	Credit
Dec 31,2020	Interest receivable	$36,000.00
	Interest revenue		$32,274.44
	Investment in bonds		$3,725.56
	[To record accrued interest revenue]
Dec 31,2021	Interest receivable	$36,000.00
	Interest revenue		$31,901.89
	Investment in bonds		$4,098.11
	[To record accrued interest revenue]