Question

(Debt Securities) 2 Presented below is an amortization schedule related to Spangler Company's 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660. Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of Bonds 12/31/12 $108,660 12/31/13 $7,000 $5,433 $1,567 107,093 12/31/14 7,000 5,354 1,646 105,447 12/31/15 7,000 5,272 1,728 103,719 12/31/16 7,000 5,186 1,814 101,905 12/31/17 7,000 5,095 1,905 100,000 The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end. 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 Amortized cost $107,093 $105,447 $103,719 $101,905 $100,000 Fair value $106,500 $107,500 $105,650 $103,000 $100,000 Instructions (a) Prepare the journal entry to record the purchase of these bonds on December 31, 2012, assuming the bonds are classified as held-to-maturity securities. (b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2013. (c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2015. (d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale. (e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2013. (f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2015.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

a. Investment in bonds Dr, $100,000

Premium on bonds Dr, $8,660

         To Cash $108,660

(Being purchase of bonds above face value is recorded)

b. Cash Dr, $7,000

       To interest revenue $5,433

       To premium amortization $1,567

(Being interest revenue earned, received and premium on bonds amortization is recorded)

c. Cash Dr, $7,000

       To interest revenue $5,354

       To premium amortization $1,646

(Being interest revenue earned, received and premium on bonds amortization is recorded)

d. Cash Dr, $7,000

       To interest revenue $5,272

       To premium amortization $1,728

(Being interest revenue earned, received and premium on bonds amortization is recorded)

e. Investment in bonds Dr, $100,000

Premium on bonds Dr, $8,660

          To Cash $108,660

(Being purchase of bonds above face value is recorded)

f. Investment in bonds Dr, $108,660

          To Cash $108,660

(Being purchase of bonds above face value is recorded)