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Callaho Inc. purchased $95,000 of Ludwig Inc. 8% bonds at a price of 104.5 on January...

Callaho Inc. purchased $95,000 of Ludwig Inc. 8% bonds at a price of 104.5 on January 1, 2014. The bonds mature on December 31, 2016. Callaho Inc. uses the straight-line method of amortizing any premium or discount on investments in bonds. At December 31, 2014 and 2015, the market value of the bonds is quoted at 104 and 105, respectively. Interest is paid out each year on December 31. Callaho Inc. follows ASPE and management accounts for this investment at amortized cost.

Show the entry to record the purchase of the bonds, the entry to be made on December 31, 2014, and the entry to be made on December 31, 2015. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan). Please make sure your final answer(s) are accurate to 2 decimal places.

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Answer #1

No.

date

General journal

Debit

Credit

2014

1

1/Jan

Investment in bonds

99275

Cash (95000*104.5%)

99275

(to record purchase of bonds)

2

31/Dec

Cash (95000*8%)

7600

Investment in bonds (99275-95000)/3

1425

Interest revenue

6175

(to record interest received)

2015

3

31/Dec

Cash (95000*8%)

7600

Investment in bonds (99275-95000)/3

1425

Interest revenue

6175

(to record interest received)
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