Question

Exercise 9-5 on January 1, 2017, Flint Limited paid $500 253 90 for 12% bonds with a maturity value of $465,000. The bonds provide the bondholders with a 10% ed They are date January 1, 2017, and mature on January 1, 2022, with interest receivable on December 31 of each year. Flint accounts for the bonds using the amortized cost approach, applies ASPE using the effective interest method, and has a December 31 year end. Assume that Flint hopes to make a gain on the bonds as interest rates are expected to fal Flint accounts for the bonds at fair value with changes in value taken to net income, and separately recognizes and reports interest income. The fair value of the bonds at December 31 of each year end is as follows 2017 $496,800.00 2018 $478,950.00 2019 $477,090.00 2020 $471,510.00 2021 $465,000.00

Answer 1

Journal Entry to record the Bond purchase is mentioned in below table.

Date of Transaction	Accounts Titles & Explanation	Debit (Dr) Amount in $	Credit (Cr) Amount in $
January 1, 2017	Debt Investments A/c Dr	500254
	To Cash A/c		500254
	(Being record entered for purchase of 12% bonds and paid through cash)

Journal Entries for recording interest income, interest received and recognition at fair value are mentioned in below table

Date of Transaction	Accounts Titles & Explanations	Debit (Dr) Amount in $	Credit (Cr) Amount in $
December 31,2017	Cash A/c Dr	60030
	Debt Investments A/c		10005
	Interest Income A/c		50025
	(Being entry recorded for Interest income received at December 31, 2017)
December 31, 2017	Fair Value NI Investments A/c Dr	6550
	Unrealized holding Gain on Equity		6550
	(Being entry recorded for recognition of fair value

Similarly we will calculate and record the journal entries for December31, on 2018 and 2019

December 31,2018	Cash A/c	59616
	Debt Investments A/c		9936
	Interest Income A/c		49680
December 31, 2018	Unrealized Holding loss on equity A/c	7914
	Fair Value NI Investments A/c		7914
December 31,2019	Cash A/c	57474
	Debt Investments A/c		9579
	Interest Income A/c		47895
December 31, 2019	Fair Value NI Investments A/c	7719
	Unrealized Holding Gain on Equity		7719

Therefore we have calculated and recorded journal entries for interest income received and recognition of fair value at the end of December 31 for year 2017, 2018 and 2019 respectively.