Question

On January 1, 2020, Teal Company purchased 10% bonds having a maturity we of 5380.000, for $410.343.38. The bands provide the bondholders with a 8% yield. They are dated January 1, 2020, and mature January 1 2025, with interest received on January 1 of each year. Teal Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category 2.525 25. Credit runt titles are automatically indented when amounts entered. Do not indent manually. Une entry is required Prepare the journal entry at the date of the band purchase (Enter answers to 2 decimal places select "No Entry for the accountities and enter for the amounts) Date Account Titles and Explanation Debit Credit Jan. 1.2020 e Textbook and Media List of Accounts Prepare a bond amortization schedule. (Round answers to 2 decimal places 2.525.25) Schedule of Interest Revenue and bland Premium Amortization Effective Interest Method Interest Carrying Amount Cash Received Premium Amortired Date 1/1/20 1/1/21 1/1/22 1/1/23 1/1/25

Answer 1

Journal entry at the time of purchase:

Date	Account title and Explanation	Debit	Credit
Jan 1,2020	Investment in bonds	$410,343.38
	Cash		$410,343.38
	[To record bonds purchase]

Amortization Table:

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				$410,343.38
1/1/21	$38,000.00	$32,827.47	$5,172.53	$405,170.85
1/1/22	$38,000.00	$32,413.67	$5,586.33	$399,584.52
1/1/23	$38,000.00	$31,966.76	$6,033.24	$393,551.28
1/1/24	$38,000.00	$31,484.10	$6,515.90	$387,035.38
1/1/25	$38,000.00	$30,962.83	$7,035.38*	$380,000.00

*Rounded to $2

Cash received = $380,000 x 10% = $38,000

Interest revenue = Preceding carrying amount of bonds x 8%

Premium amortized = Cash received - Interest revenue

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

Journal entry at Dec 31,2020:

Date	Account title and Explanation	Debit	Credit
Dec 31,2020	Interest receivable	$38,000.00
	Interest revenue		$32,827.47
	Investment in bonds		$5,172.53
	[To record interest revenue and amortization]

Journal entry at Dec 31,2021:

Date	Account title and Explanation	Debit	Credit
Dec 31,2021	Interest receivable	$38,000.00
	Interest revenue		$32,413.67
	Investment in bonds		$5,586.33
	[To record interest revenue and amortization]