Question
In: Accounting
Presented below is an amortization schedule related to Mets Company’s 5-year, $100,000 bond with a 5%...
Presented below is an amortization schedule related to Mets Company’s 5-year, $100,000 bond with a 5% interest rate and a 6% yield, purchased on December 31, 2020, for $95,788.
|
Carrying |
||||
|
Interest |
Value of |
|||
|
Date |
Cash |
Revenue |
Investment |
Investment |
|
1/1/2021 |
95788 |
|||
|
12/31/2021 |
5000 |
5747.27 |
747 |
96535 |
|
12/31/2022 |
5000 |
5792.10 |
792 |
97327 |
|
12/31/2023 |
5000 |
5839.63 |
840 |
98167 |
|
12/31/2024 |
5000 |
5890.01 |
890 |
99057 |
|
12/31/2025 |
5000 |
5943.41 |
943 |
100000 |
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.
12/31/21 12/31/22 12/31/23 12/31/24 12/31/25
Amortized cost $96,535 $97,327 $98,167 $99,057 $100,000
Fair value $97,250 $97,100 $97,375 $99,500 $100,000
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2020, assuming the bonds are classified as held-to-maturity securities.
(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2021.
(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2023.
(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 2021.
(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2023.
Solutions
Expert Solution
| Date | Account Titles & Explanation | Debit | Credit |
| 31-Dec-20 | Held-to-Maturity Securities | $ 95,788.00 | |
| Cash | $ 95,788.00 | ||
| 31-Dec-21 | Cash | $ 5,000.00 | |
| Held-to-Maturity Securities | $ 747.00 | ||
| Interest Revenue | $ 5,747.27 | ||
| 31-Dec-23 | Cash | $ 5,000.00 | |
| Held-to-Maturity Securities | $ 840.00 | ||
| Interest Revenue | $ 5,839.63 | ||
| 31-Dec-20 | Available-for-Sale Securities | $ 95,788.00 | |
| Cash | $ 95,788.00 | ||
| 31-Dec-21 | Cash | $ 5,000.00 | |
| Available-for-Sale Securities | $ 747.00 | ||
| Interest Revenue | $ 5,747.27 | ||
| Securities Fair Value Adjustment ((Available-for-Sale) | $ 715.00 | ||
| Unrealized Holding Gain or Loss— Equity | $ 715.00 | ||
| (97,250 -96,535) | |||
| 31-Dec-23 | Cash | $ 5,000.00 | |
| Available-for-Sale Securities | $ 840.00 | ||
| Interest Revenue | $ 5,839.63 | ||
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