Question

Exercise 17-4 On January 1, 2017, Grouper Company purchased 12% bonds, having a maturity value of $278,000, for $299,076.51. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, 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 $296,600 $287,300 $286,200 2020 2021 $288,200 $278,000 (a) (b) (c) Prepare the journal entry at the date of the bond purchase. Prepare the journal entries to record the interest revenue and recognition of fair value for 2017 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 E No. Date Account Titles and Explanation Debit Credit (To record interest received) (To record fair value adjustment)

Answer 1

Journal Account title Debit Credit Date 01-01-2017 Debt investments $299,076.51 $299,076.51 Cash Interest receivable $33,360.00 31-12-2017 $278,000 x 12% X $3,452.35 Debt investments (Plug) Interest revenue $29,907.65 ($299,076.51 x 10% ) X $5,055.84 31-12-2017 Fair value adjustment Unrealized holding gain $5,055.84 ($296,600 - $291,544.16) 31-12-2018 Unrealized holding gain or loss $9,097.26 Fair value adjustment $9,097.26 [($287,300- $283,258.58) + $5,055.84]

Workings for cost of debt investments: Interest revenue at Beginning Balance (A) Cash received Premium amortized Ending Balance Description 10% (B $312,000 x 12%)| (D B-C) (C) On 01-01-2017 $299,076.51 On 31-12-2017 $299,076.51 $37,440.00 $37,440.00 $37,440.00 $29,907.65 $7,532.35 $291,544.16 $283,258.58 $291,544.16 $283,258.58 $29,154.42 $8,285.58 On 31-12-2018 On 31-12-2019 $28,325.86 $9,114.14 $274,144.43 Total