Question

Exercise 17-03 On January 1, 2020, Pearl Company purchased 8% bonds having a maturity value of $400,000, for $433,699.52. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Pearl Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Your answer is correct. Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. 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 enter an account title to record the transaction on January 1, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction on January 1, 2020 enter a debit amount enter a credit amount SHOW LIST OF ACCOUNTS SHOW ANSWER LINK TO TEXT

Your answer is incorrect. Try again. Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.) Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method Date Cash Received Interest Revenue Premium Amortized Carrying Amount of Bonds 1/1/20 1/1/21 1/1/22 1/1/23 1/1/24 enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places 1/1/25 enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places enter a dollar amount rounded to 2 decimal places

Your answer is incorrect. Try again. Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020. Date Account Titles and Explanation Debit Credit Dec. 31, 2020 enter an account title to record the transaction on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction on December 31, 2020 enter a debit amount enter a credit amount enter an account title to record the transaction on December 31, 2020 enter a debit amount enter a credit amount

Answer 1

Requirement 1:-

The journal entry to record the Bond purchase is as follows:-

January 1, 2020	Investments in Bonds A/c Dr.	433,699.52
	To Cash A/c		433,699.52
	(To record the purchase of Bonds)

Requirement 2:-

The Bond amortization schedule is setup as :-

Date	Cash Received	Interest Revenue	Premium Amortization	Bond Carrying Amount
January 1, 2020				433,699.52
January 1, 2021	32,000.00	26,021.97	5,978.03	427,721.49
January 1, 2022	32,000.00	25,663.29	6,336.71	421,384.78
January 1, 2023	32,000.00	25,283.09	6,716.91	414,667.87
January 1, 2024	32,000.00	24,880.07	7,119.93	407,547.94
January 1, 2025	32,000.00	24,452.88	7,547.12	400,000.82

Cash Received = $400,000 * 8% = $32,000 Annually

Interest revenue = Carrrying value * Market rate of interest

For example on January 1, 2021 :- $433,699.52 * 6% = $26,021.97

Requirement 3:-

	Particulars	Amount	Amount
December 31, 2020	Cash A/c	32,000
	To Investment in Bonds A/c		5,978.03
	To Interest Revenue A/c		26,021.97
	(To record the interest revenue and premium amortization)

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