Question

On July 1, 2020, Sarasota Company purchased $4,070,000 of Duggen Company’s 8% bonds, due on July 1, 2027. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for $3,590,000 to yield 10%. These bonds are classified as available-for sale and they have a fair value at December 31, 2020, of $3,691,800, prepare the journal entry (if any) at December 31, 2020, to record this transaction.

Answer 1

Solution:

Sarasota Company
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-20	Interest receivables Dr	$162,800.00
	Discount on bond investment Dr	$16,700.00
	To Interest revenue		$179,500.00
	(To record interest accrued)
31-Dec-20	Fair value adjustment Dr ($3,691,800 - $3,590,000 - $16,700)	$85,100.00
	To Unrealized holding gain or loss - OCI		$85,100.00
	(To record fair value adjustment on AFS investment)