Question

Presented below is an amortization schedule related to Cheyenne Company’s 5-year, $120,000 bond with a 6% interest rate and a 3% yield, purchased on December 31, 2015, for $136,487. Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of Bonds 12/31/15 $136,487 12/31/16 $7,200 $4,095 $3,105 133,382 12/31/17 7,200 4,001 3,199 130,183 12/31/18 7,200 3,905 3,295 126,888 12/31/19 7,200 3,807 3,393 123,495 12/31/20 7,200 3,705 3,495 120,000 The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end: 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 Amortized cost $133,382 $130,183 $126,888 $123,495 $120,000 Fair value $132,800 $132,300 $128,700 $124,700 $120,000 (a) Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified as held-to-maturity securities. (b) Prepare the journal entry related to the held-to-maturity bonds for 2016. (c) Prepare the journal entry related to the held-to-maturity bonds for 2018. (d) Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale. (e) Prepare the journal entries related to the available-for-sale bonds for 2016. (f) Prepare the journal entries related to the available-for-sale bonds for 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select

Answer 1

Explanation 1 : When a company plans to held the investment until maturity, the investments are classified as held to maturity and long term investments
These investments are shown at amortized cost
First the purchase entry is made for purchase on bond and than journal entry is recorded for receipt of interest on these bonds
Explanation 2 : When investments are held as available for sale, the purchase value is recorded at the cost including any fees on purchases of Bond and available for sale securities is debited and cash is credited for investements
In Subsequent years, if the value of investments held as sale as reduced than the investments are written down to the new value of bond and the loss is charged to the unlrealised gain/loss - other comprehensive icome account
This account is reported as part of comprehensive income
	Date	Particular	Debit	Credit
a	31-Dec-15	Debt Investment/Investment on Bonds	$136,487
		To Cash		$136,487
b	31-Dec-16	Cash	$7,200
		To Interest Revenue		$4,095
		To Debt Investment		$3,105
c	31-Dec-18	Cash	$7,200
		To Interest Revenue		$3,905
		To Debt Investment		$3,295
d	31-Dec-15	Available for Sale Securities	$136,487
		To Cash		$136,487
e	31-Dec-16	Available for Sale Securities	$3,105
		To Unrealized gain/loss - other comprehensive income		$3,105
		(136487-133382)
f	31-Dec-18	Available for Sale Securities	$3,295
		To Unrealized gain/loss - other comprehensive income		$3,295
		(130183-126888)