Question

Your answer is partially correct. Try again. On January 1, 2017, Cheyenne Company purchased 11% bonds, having a maturity value of $301,000, for $324,415.24. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Cheyenne Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2017 2018 2019 $322,200 2020 $309,800 2021 $308,900 $310,900 $301,000 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2017. (c) Prepare the journal entry to record the recognition of fair value for 2018. (Round 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.) No. Date (a) Jan. 1, 2017 Account Titles and Explanation Debt Investments Cash Debit Credit 324,415.24 T1324,415.24 (b) Dec. 31, 2017 Cash Debt Investments Interest Revenue (To record interest received) Fair Value Adjustment Unrealized Holding Gain or Loss - II (To record fair value adjustment) (c) Dec. 31, 2018 Unrealized Holding Gain or Loss - I Fair Value Adjustment Question Attempts: 1 of 5 used

Answer 1

Solution:

Date	Accounts and Explanation	Debit	Credit
1/1/2017	Debt Investments (Available for sale)	$          324,415.24
	Cash		$ 324,415.24
	(Being bonds purchased
31/12/2017	Cash	$             33,110.00
	Debt Investments (Available for sale)		$       3,912.63
	Interest revenue		$    29,197.37
	( Being interest expense paid along with principal)
31/12/2017	Fair Value Adjustment (Note: 2)	$               1,697.39
	Unrealized holding gain or loss		$       1,697.39
	( Being fair value adjustment)
31/12/2018	Unrealized holding gain or loss (Note: 3)	$ 8,135.24
	Fair Value Adjustment		$ 8,135.24
	( Being fair value adjustment)

Notes:

1) 2018 Fair value adjustment = $309,800 - $ 316,237.85 = $ ( 6,437.85 )

2) 2017 Year adjustment = $ 322,200 - $ 320,502.61 =$ 1,697.39

3) Total adjustment needed in 2018 = $ 8,135.24 ( 6437.85 + 1697.39)

4) Amortization Table

Date	Cash Received	Interest Revenue	Premium Amortized	Carrying Amount of Bonds
1/1/2017				$                             324,415.24
31/12/17	$              33,110.00	$              29,197.37	$                    3,912.63	$                             320,502.61
31/12/18	$              33,110.00	$              28,845.24	$                    4,264.76	$                             316,237.85