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Sheridan Corporation purchased on January 1, 2020, as a held-to-maturity investment, $52,000 of the 7%, 5-year bonds of Harri

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Answer #1

Journal Entries:

No. Account title and explanation Debit Credit
(a) Held-to-maturity Bonds $56,551
Cash $56,551
[To record purchase of the investment]
(b) Cash* $1,820
Interest income ** $1,414
Held-to-maturity Bonds*** $406
[To record receipt of semi-annual interest and premium amortization]

Calculations

*Semi-annual interest received = Face value x Interest rate

= $52,000 x 7% x 6/12

= 1,820

**Interest income = Carrying value of the bond x effective interest rate

= $56,551 x 5% x 6/12

=$1,414

***Premium amortization = Cash received - Interest income

=1,820-1,414

=$406

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