Presented below is an amortization schedule related to Blue Company’s 5-year, $110,000 bond with a 6%...
Presented below is an amortization schedule related to Blue Company’s 5-year, $110,000 bond with a 6% interest rate and a 4% yield, purchased on December 31, 2015, for $119,794.
|
|
Cash |
Interest |
Bond Premium |
Carrying Amount |
||||
| 12/31/15 | $119,794 | |||||||
| 12/31/16 | $6,600 | $4,792 | $1,808 | 117,986 | ||||
| 12/31/17 | 6,600 | 4,719 | 1,881 | 116,105 | ||||
| 12/31/18 | 6,600 | 4,644 | 1,956 | 114,149 | ||||
| 12/31/19 | 6,600 | 4,566 | 2,034 | 112,115 | ||||
| 12/31/20 | 6,600 | 4,485 | 2,115 | 110,000 |
The following schedule presents a comparison of the amortized cost
and fair value of the bonds at year-end:
|
12/31/16 |
12/31/17 |
12/31/18 |
12/31/19 |
12/31/20 |
||||||
| Amortized cost | $117,986 | $116,105 | $114,149 | $112,115 | $110,000 | |||||
| Fair value | $117,400 | $118,000 | $116,000 | $113,200 | $110,000 |
| (a) | Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified as held-to-maturity securities. | |
| (b) | Prepare the journal entry related to the held-to-maturity bonds for 2016. | |
| (c) | Prepare the journal entry related to the held-to-maturity bonds for 2018. | |
| (d) | Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale. | |
| (e) | Prepare the journal entries related to the available-for-sale bonds for 2016. | |
| (f) |
Prepare the journal entries related to the available-for-sale bonds for 2018. |
Homework Answers
(a) -- Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified as held-to-maturity securities.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2015 |
Held-to-Maturity Securities Cash |
119794 - |
- 119794 |
.
(b) -- Prepare the journal entry related to the held-to-maturity bonds for 2016.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2016 |
Cash Held-to-Maturity Securities Interest Revenue |
6600 - - |
- 1808 4792 |
.
(c) -- Prepare the journal entry related to the held-to-maturity bonds for 2018.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2018 |
Cash Held-to-Maturity Securities Interest Revenue |
6600 - - |
- 1956 4644 |
.
(d) -- Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2015 |
Available-for-Sale Securities Cash |
119794 - |
- 119794 |
.
(e) -- Prepare the journal entries related to the available-for-sale bonds for 2016.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2016 |
Cash Available-for-Sale Securities Interest Revenue |
6600 - - |
- 1808 4792 |
| December 31, 2016 |
Unrealized Holding Gain or Loss--Equity [$117986 - $117400] Securities Fair Value Adjustment (Available-for-Sale) |
586 - |
- 586 |
.
(f) -- Prepare the journal entries related to the available-for-sale bonds for 2018.
Answer -
| Date | General journal | Debit ($) | Credit ($) |
| December 31, 2018 |
Cash Available-for-Sale Securities Interest Revenue |
6600 - - |
- 1956 4644 |
| December 31, 2018 |
Unrealized Holding Gain or Loss--Equity Securities Fair Value Adjustment (Available-for-Sale) ($116000 - $114149) - ($118000 - $116105) |
44 - |
- 44 |
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