Business, 28.07.2020 21:01 tristanthecat

On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category. Instructions
a. Prepare the journal entry at the date of the bond purchase.
b. Prepare a bond amortization schedule.
c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.
d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.

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Answer from: zhellyyyyy

a. Prepare the journal entry at the date of the bond purchase.

January 1, 2020, bonds purchased at a premium

Dr Bonds receivable 300,000

Dr Premium on bonds receivable 22,744.44

Cr Cash 322,744.44

b. Prepare a bond amortization schedule.

Date Interest Cash Premium Unamortized Carrying

revenue received amortization premium value

1/1/20 - -322,744.44 - 22,744.44 277,255.56

1/1/21 32,274.44 36,000 3,725.56 19,018.88 280,981.12

1/1/22 31,901.89 36,000 4,098.11 14,920.77 285,079.23

1/1/23 31,492.08 36,000 4,507.92 10,412.85 289,587.15

1/1/24 31,041.23 36,000 4,958.77 5,454.08 294,545.92

1/1/25 30,545.92 336,000 5,454.08 0 0

c. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.

Dr Interest receivable 36,000

Cr Interest revenue 32,274.44

Cr Premium on bonds receivable 3,725.56

(322,744.44 x 10%) - (300,000 x 12%) = 32,274.44 - 36,000 = 3,725.56

d. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.

Dr Interest receivable 36,000

Cr Interest revenue 31,901.89

Cr Premium on bonds receivable 4,098.11

(319,018.88 x 10%) - (300,000 x 12%) = 31,901.89 - 36,000 = 4,098.11

amortization year 3:

(314,920.77 x 10%) - (300,000 x 12%) = 31,492.08 - 36,000 = 4,507.92

amortization year 4:

(310,412.85 x 10%) - (300,000 x 12%) = 31,041.23 - 36,000 = 4,958.77

amortization year 5:

5,454.08

Answer from: Quest

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Answer from: Quest

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On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for...

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