Question

Exercise 174 O January 1, 2017, Swifty Company purchased 12% bonds, having a mat ty alue of S 284,000 for sos 531.40. The bonds provide the bo dold i nD。10%- There d edla y t, 201, nd" ear y, 2022, with interest received on Janubry 1 of each year Swlfty Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are dessified as avalable-for-sale cateory The air valve of the 31 of each year-end is as $303,400 2020 $292,200 2021 S284.00 2019 291,200 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the yournal entries to record the inberest revenue and recognition of alue for 201 (e) Prepare the jourmal entry to record the recognition of fair value for 2018 (Round answers to 2 decimal places -p. 2,.s2s.a5. Credtacount titles are automaticalty indented when amount Ca) lihe to Shew work for this question O Show Click e

Answer 1

Journal Entries:

Date Account Titles and Explanation 112% Bonds Premium on 1290 Bonds ($305,531.40-$284,000) Debit (S) Credit (S) 284,000 21,531.40 a) Cash (To record the purchase of 12% of Bonds at premium Interest Receivable (S284,000*12/100) 305,531.40 34,080.00 Interest Revenue (see note Premium on 30,553 3,527 Bonds (see note) (To record the interest revenue earned on bonds 12% Bonds ($305531.40-$284,000) 21,531.40 Unrealized gain in investment 21,531.40 (To record the fair value of bonds for 2018 Cash 34,080 34,080 Interest Receivable o record the receipt of interest

Working notes:

31 Interest Interest Premium Carrying received Revenue Amortized amount of Date Tasm 1 201 Dec. 31. 2017 34,080 30,553.143,527 302,004.54 Dec. 31. 2018 34,080 30,200.453,879.55 298,124.99 (S) S) bonds (S) 305,531.40 32 35

31 Interest received Interest Premium Carrving Amortized Date Jan. 1 2017 Dec. 31. 2017 34080 Dec. 31. 2018 34080 amount of bonds (S) 305531.4 -M33-L34 |-1134-L35 32 Revenue (S) (S) ΞΜ33*0.1 M34*0.1 |:J34-K34 J35-K35 34 35