Question

*Exercise 17-03 On January 1, 2020, Carla Company purchased 8% bonds having a maturity value of $400,000, for $433,699.52. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Carla 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. 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.) Account Titles and Explanation Debit Credit Date Jan. 1, 2020 Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.) Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method Interest Premium Revenue Amortized Cash Received Date Carrying Amount of Bonds 1/1/20 1/1/21 1/1/22 1/1/23 1/1/24 1/1/25 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. 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.) Debit Credit Date Account Titles and Explanation Dec. 31, 2020 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. 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.) Debit Credit Date Account Titles and Explanation Dec. 31, 2021

Answer 1

cash flow period (A) table factor (B) 4.21236 0.74726 1--5 annual interest $32,000 redemption value $4,00,000 purchase price of bonds = present value (A) * (B) $1,34,795.52 $2,98,904.00 $4,33,699.52

date account titles and explanation debit credit 01 January 2020 $4,00,000.00 $33,699.52 investment in bonds premium on bonds cash (to record investment in bonds) $4,33,699.52

bond amortization schedule interest premium cash received revenue amortized date 01 January 2020 01 January 2021 01 January 2022 01 January 2023 01 January 2024 01 January 2025 $32,000.00 $32,000.00 $32,000.00 $32,000.00 $32,000.00 $26,021.97 $25,663.29 $25,283.09 $24,880.07 $24,452.88 $5,978.03 $6,336.71 $6,716.91 $7,119.93 $7,547.12 carrying amount of bonds $4,33,699.52 $4,27,721.49 $4,21,384.78 $4,14,667.87 $4,07,547.94 $4,00,000.82

date account titles and explanation debit credit $32,000.00 31 December 2020 interest receivable premium on bonds interest revenue (to record interest revenue) $5,978.03 $26,021.97 date account titles and explanation debit credit $32,000.00 31 December 2021 interest receivable premium on bonds interest revenue (to record interest revenue) $6,336.71 $25,663.29

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