Question

Presented below is an amortization schedule related to Flounder Company's 5-year, $170,000 bond with a 7% interest rate and a 4% yield, purchased on December 31, 2015, for $192,705. Cash Interest Received Revenue Bond Premium Amortization Date 12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 $11,900 11,900 11,900 11,900 11,900 $7,708 7,541 7,366 7,185 6,995 $4,192 4,359 4,534 4,715 4,905 Carrying Amount of Bonds $192,705 188,513 184,154 179,620 174,905 170,000 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 12/31/1912/31/20 Amortized cost $188,513 $184,154 $179,620 $174,905 $170,000 Fair value $187,900 $186,300 $181,400 $176,000 $170,000 (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.

Answer 1

Answer a)
Journal Entry
31-12-15	Investment (Hold till maturity) A/c Dr .	192705
	To Bank A/c		192705
	(Being 7% Bonds of Flounder Company Purchased)
Answer b)
31-12-16	Bank A/c                                                              Dr.	11900
	To Interest A/c		7708
	To Investment (HTM) A/c		4192
	(Being the interest received in 2016)
Answer c)
31-12-18	Bank A/c                                                               Dr.	11900
	To Interest A/c		7366
	To Investment (HTM) A/c		4534
	(Being the interst recd in 2018)

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