Question

Exercise 17-3 On January 1, 2017, Cullumber Company purchased 10% bonds having a maturity value of $220,000, for $237,567.22. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Cullumber 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. (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, 2017

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 1/1/17 $ $ $ $ 1/1/18 1/1/19 1/1/20 1/1/21 1/1/22

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

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

Answer 1

	Date	Account titles and Explanation				Debit	Credit
	1/1/2017	Debt Investments				237,567.22
		cash					237,567.22
		Bond Amortization Schedule
	Date	Cash	Interest	Premium	Carrying
		Received	Revenue	Amortized	amount
	1/1/2017				237,567.22
	1/1/2018	22000	19005.38	2994.62	234572.60
	1/1/2019	22,000	18765.81	3234.19	231338.41
	1/1/2020	22,000	18507.07	3492.93	227845.48
	1/1/2021	22,000	18227.64	3772.36	224073.12
	1/1/2022	22,000	17926.88	4073.12	220000.00
		cash received = 220,000*10%
		interest revenue = carrying amount of previous yr *8%
	Date	Account titles and Explanation				Debit	Credit
	12/31/2017	Interest receivable				22,000
		Debt investments					2,994.62
		Interest income					19,005.38
	12/31/2018	Interest receivable				22,000
		Debt investments					3,234.19
		Interest income					18,765.81