Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $60,000 of 5%...

Max's Company invests in the bonds issued by CarmCorp. On 1/1/20 Max buys $60,000 of 5% bonds that pay interest on 1/1. They mature in 10 years and yield 6%. Max pays $55,584. On 12/31/20, the fair value of the bonds is $60,800. Assuming the bonds are classified as "Trading", prepare the journal entries for 1/1/20, 12/31/20, and 1/1/21. You may omit (leave out) the closing entries

Expert Solution

Max's Company
Date	General journal	Debit	Credit
1/1/20	Investment in CarmCorp Bonds (Trading)	60,000
	Discount on bond investment (60000-55584)		4,416
	Cash		55,584
	*(To record purchase of bond.)*

12/31/20	Interest receivable (60000*5%)	3,000
	Discount on bond investment	335
	Interest revenue (55584*6%)		3,335
	*(To record accrue interest receivable)*

12/31/20	Fair value Adjustment - Trading	4,881
	Unrealized holding Gain on bond investment - NI [net income]		4,881
	*(To record Fair value Adjustment.) (60800-55919)*
	Amortized cost = 60000-(4416-335) = 55919

1/1/21	Cash	3,000
	Interest receivable (60000*5%)		3,000
	*(To record interest received.)*

ekkarill92 answered 2 years ago

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