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.

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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