Robert Company purchased $100,000 of 8 percent bonds of Evergreen Corp. on January 1, 20x1, at $92,278. The bonds mature January 1, 20x16, and yield 10%. Interest is payable each July 1 and January 1. The market value on December 31, 20x1 was $92,500 and all bonds were sold for $93,300 on January 1, 20x2.
Required: prepare journal entries on January 1, 20x1, July 1, 20x1, December 31, 20x1 and January 1, 20x2 assuming the bond investment is classified as
(1) Held-to-Maturity
(2) Trading
(3) Available-for-Sale
II. On November 1, 20x1, Bush Company issued 10% bonds with a face amount of $20 million. The bonds mature in 10 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on April 30 and October 31. Bush is a calendar-year corporation.
Required:
(1.) Determine the price of the bonds at November 1, 20x1.
(2.) Prepare the journal entry to record the bond issuance by Bush on November 1, 20x1.
(3.) Prepare the journal entries (using the effective interest method):
a. December 31, 20x1
b. April 30, 20x2
c. October 31, 20x2
*Assume no reversing entry is recorded on January 1, 20x2.
(4.) What would be the journal entry if all bonds are retired at 103 on May 1, 20x3 right after the third payment.
