Question

On January 1, 2020, Tamarisk Company purchased $350,000, 8% bonds of Aguirre Co. for $322,973. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025. Tamarisk Company uses the effective-interest method to amortize discount or premium. On January 1, 2022, TamariskCompany sold the bonds for $324,733 after receiving interest to meet its liquidity needs.

Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020

eTextbook and Media

List of Accounts

  

  

Prepare the amortization schedule for the bonds. (Round answers to 0 decimal places, e.g. 1,250.)

Schedule of Interest Revenue and Bond Discount Amortization—Effective-Interest Method Bonds Purchased to Yield
Date		Interest Receivable Or Cash Received		Interest Revenue		Bond Discount Amortization		Carrying Amount of Bonds
1/1/20		$		$		$		$
7/1/20
1/1/21
7/1/21
1/1/22
7/1/22
1/1/23
7/1/23
1/1/24
7/1/24
1/1/25
Total		$		$		$

eTextbook and Media

List of Accounts

  

  

(c)		Prepare the journal entries to record the semiannual interest on (1) July 1, 2020, and (2) December 31, 2020.
(d)		If the fair value of Aguirre bonds is $326,733 on December 31, 2021, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on December 31, 2020, is a debit of $3,212.)
(e)		Prepare the journal entry to record the sale of the bonds on January 1, 2022.

(Round answers to 0 decimal places, e.g. 2,500. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.		Date	Account Titles and Explanation	Debit	Credit
(c)	(1)	July 1, 2020Dec. 31, 2020Dec. 31, 2021Jan. 1, 2022
	(2)	July 1, 2020Dec. 31, 2020Dec. 31, 2021Jan. 1, 2022
(d)		July 1, 2020Dec. 31, 2020Dec. 31, 2021Jan. 1, 2022
(e)		July 1, 2020Dec. 31, 2020Dec. 31, 2021Jan. 1, 2022

Answer 1

(a)

		Debit	Credit
Jan. 1, 2020	Debt investment	322,973
	Cash		322,973

(b)

Date	Interest receivable or cash received	Interest	Bond discount amortization	Carrying amount of bonds
1/1/20				322973
7/1/20	14,000	16149	2149	325122
1/1/21	14,000	16256	2256	327378
7/1/21	14,000	16369	2369	329747
1/1/22	14,000	16487	2487	332234
7/1/22	14,000	16612	2612	334846
1/1/23	14,000	16742	2742	337588
7/1/23	14,000	16879	2879	340467
1/1/24	14,000	17023	3023	343490
7/1/24	14,000	17175	3175	346665
1/1/25	14,000	17335	3335	350,000
Total	140,000	167,027	27,027

(c)

		Debit	Credit
July 1, 2020	Cash	14,000
	Debt investment	2149
	Interest revenue		16,149
Dec 31, 2020	Cash	14,000
	Debt investment	2256
	Interest revenue		16,256

(d)

		Debit	Credit
December 31, 2021	Unrealized Holding Gain or Loss – Equity [(326,733 - 324,733) + 3212]	5212
	Fair Value Adjustment (Available-for-Sale)		5212

(e)

		Debit	Credit
Jan. 1, 2022	Cash	324,733
	Loss on sale of investments (balancing figure)	7,501
	Debt investments		332,234