Question

On January 1, 2017, Monty Company purchased 9% bonds having a maturity value of $290,000, for $313,782.32. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Monty Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Prepare the journal entry at the date of the bond purchase.

Prepare a bond amortization schedule.

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018.

Answer 1

1

Prepare the journal entry at the date of the bond purchase.

Date	Description	Debit $	Credit $
1-Jan-17	Debt Investments (Held-to-Maturity)	313,782.32
	Cash		313,782.32

____________________________

2

Prepare a bond amortization schedule.

Schedule of Interest Revenue and Bond Premium Amortization
Effective-Interest Method
9% Bonds Sold to Yield 7%
	Cash	Interest	Premium	Carrying Amount
Date	Received	Revenue	Amortized	of Bonds
1/1/2017	-	-	-	313,782
12/31/2017	26,100.00	21,964.76	4,135.24	309,647
12/31/2018	26,100.00	21,675.30	4,424.70	305,222
12/31/2019	26,100.00	21,365.57	4,734.43	300,488
12/31/2020	26,100.00	21,034.16	5,065.84	295,422
12/31/2021	26,100.00	20,679.55	5,420.45	290,000

__________________________________

3

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.

Date	Description	Debit $	Credit $
31-Dec-17	Cash	26,100
	Debt Investments (Held-to-Maturity)		4,135
	Interest Revenue		21,965

__________________________________________

4

Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018.

Date	Description	Debit $	Credit $
31-Dec-18	Cash	26,100
	Debt Investments (Held-to-Maturity)		4,424.70
	Interest Revenue		21,675.30