Homework Answers
1. Journal entry at the date of bond purchase:
| Date | Account titles and Explanations | Debit | Credit |
| January 1,2020 | Debt Investments | 453,537.42 | |
| Cash | 453,537.42 |
2. Bond Amortization Schedule ( Workings provided at the end of the answer)
| Interest Revenue and Bond Premium Amortization | ||||
| Date | Cash Received | Interest Revenue | Premium Amortized | Carrying Amount of Bonds |
| 01-01-2020 | - | - | - | 4,53,537.42 |
| 01-01-2021 | 42,000 | 36,282.99 | 5,717.01 | 4,47,820.41 |
| 01-01-2022 | 42,000 | 35,825.63 | 6,174.37 | 4,41,646.05 |
| 01-01-2023 | 42,000 | 35,331.68 | 6,668.32 | 4,34,977.73 |
| 01-01-2024 | 42,000 | 34,798.22 | 7,201.78 | 4,27,775.95 |
| 01-01-2025 | 42,000 | 34,222.08 | 7,777.92 | 4,19,998.02 |
3. Journal entry for Interest revenue and Amortization for December 31, 2020
| Date | Account titles and Explanations | Debit | Credit |
| December 31,2020 | Interest Receivable | 42,000 | |
| Debt Investments | 5,717.01 | ||
| Interest Revenue | 36,282.99 |
4. Journal entry for Interest revenue and Amortization for December 31, 2021
| Date | Account titles and Explanations | Debit | Credit |
| December 31,2021 | Interest Receivable | 42,000 | |
| Debt Investments | 6,174.37 | ||
| Interest Revenue | 35,825.63 |
Workings:
a. Interest received = 420,000 * 10% = 42,000
b. Calculation of Interest revenue and Premium Amortization
| Interest revenue | Calculation of Interest revenue | Premium Amortized | Calculation of Premium Amortized |
| 36282.99 | 453537.42*8% | 5717.01 | 42000-36282.99 |
| 35825.63 | 447820.41*8% | 6174.37 | 42000-35825.63 |
| 35331.68 | 441646.05*8% | 6668.32 | 42000-35331.68 |
| 34798.22 | 434977.73*8% | 7201.78 | 42000-34798.22 |
| 34222.08 | 427775.95*8% | 7777.92 | 42000-34222.08 |
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