Question

On January 1, 2020, Sweet Company purchased 9% bonds having a maturity value of $210,000, for $227,221.68. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Sweet 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.)

Debit Credit Date Account Titles and Explanation Jan. 1, 2020

Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.  (Round answers to 2 decimal places, e.g. 2,525.25.)

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021. (Round answers to 2 decimal places, e.g. 2,525.25.)

Answer 1

Solution:

Journal Entries - Sweet Company
Date	Particulars	Debit	Credit
1-Jan-20	Investment in bond Dr	$227,221.68
	To Cash		$227,221.68
	(To record investment in bond)

Schedule of Interest revenue and Bond Premium Amortization
Date	Cash Received	Interest revenue	Premium Amortized	Carrying amount of bonds
1-Jan-20				$227,221.68
1-Jan-21	$18,900.00	$15,905.52	$2,994.48	$224,227.20
1-Jan-22	$18,900.00	$15,695.90	$3,204.10	$221,023.10
1-Jan-23	$18,900.00	$15,471.62	$3,428.38	$217,594.72
1-Jan-24	$18,900.00	$15,231.63	$3,668.37	$213,926.35
1-Jan-25	$18,900.00	$14,974.84	$3,926.35	$210,000.00

Journal Entries - Sweet Company
Date	Particulars	Debit	Credit
31-Dec-20	Interest receivables Dr	$18,900.00
	To Interest revenue		$15,905.52
	To Premium on bond investment		$2,994.48
	(To record interest revenue and premium amortization)

Journal Entries - Sweet Company
Date	Particulars	Debit	Credit
31-Dec-21	Interest receivables Dr	$18,900.00
	To Interest revenue		$15,695.90
	To Premium on bond investment		$3,204.10
	(To record interest revenue and premium amortization)