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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

ekkarill92 answered 1 year ago
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