Question
In: Accounting
On January 1, 2020 the Walker Manufacturing Company purchased 10% bonds having a maturity value of...
On January 1, 2020 the Walker Manufacturing Company purchased 10% bonds having a maturity value of $100,000 due in 5 years. The bonds pay interest every January 1st. Walker paid a premium for the bonds in the amount of $7,985.10. As a result of paying the $7,985.10 premium, the bond investment provides Walker with an 8% yield. Required:
Prepare journal entries for the following dates:
1. January 1, 2020 when the bonds were purchased.
2. December 31, 2020 to record interest revenue and amortization.
3. January 1, 2021 to record the interest payment being received.
5. December 31, 2021 to record interest revenue and amortization.
5. January 1, 2022 to record the interest payment being received.
Solutions
Expert Solution
| Date | Account Titles | Debit | Credit | |
| Jan-01 | Investment in Bonds | $ 1,00,000.00 | ||
| 2020 | Premium on Bonds | $ 7,985.10 | ||
| Cash | $ 1,07,985.10 | |||
| Dec-31 | Interest Receivable | $ 10,000.00 | =100000*10% | |
| 2020 | Interest Revenue | $ 8,638.81 | =107985.1*8% | |
| Premium on Bonds | $ 1,361.19 | =10000-8638.81 | ||
| Jan-01 | Cash | $ 10,000.00 | ||
| 2021 | Interest Receivable | $ 10,000.00 | ||
| Dec-31 | Interest Receivable | $ 10,000.00 | ||
| 2021 | Interest Revenue | $ 8,529.91 | =(107985.1-1361.19)*8% | |
| Premium on Bonds | $ 1,470.09 | =10000-8529.91 | ||
| Jan-01 | Cash | $ 10,000.00 | ||
| 2022 | Interest Receivable | $ 10,000.00 |
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