Question
In: Accounting
On January 1, 2017, Grouper Company purchased 12% bonds, having a maturity value of $316000 for...
On
January 1, 2017, Grouper Company purchased 12% bonds, having a
maturity value of $316000 for $339957.48. The bonds provide the
bondholders with a 10% yield. They are dated January 1, 2017 and
mature January 1, 2022, with interest received on January 1 of each
year. Grouper Company uses the effective interest method to
allocate unamortized discount or premium. The bonds are classified
as available for sale category. The fair value of the bonds at
Decemeber 31 of each year end is as follows.
2017. $337900. 2020. $326400
2018. $325300. 2021. $316000
2019. $324200
a. Prepare the journal entry at the date of the bond
purchase.
b. Prepare the journal entries to record the interest revenue
and recognition of fair value for 2017.
c. Prepare the journal entry to record the recognition of fair
value for 2018.
Solutions
Expert Solution
a)
| Date | General Journal | Debit | Credit |
| 01/01/2017 | Debt Investments (Available-for-Sale) | 339,957.48 | |
| Cash | 339,957.48 |
b)
| Date | General Journal | Debit | Credit |
| 31/12/2017 | Cash | 37,920.00 | |
| Debt Investments (Available-for-Sale) | 3,924.25 | ||
| Interest Revenue (339,957.48 x 10%) | 33,995.75 |
| 31/12/2017 | Fair Value Adjustment (Available-for-Sale) | 1,866.77 | |
| Unrealized Holding Gain or Loss-Equity (337,900 - 336,033.23) | 1,866.77 |
c)
| 31/12/2018 | Unrealized Holding Gain or Loss-Equity | 8,283.32 | |
| Fair Value Adjustment (Available-for-Sale) | 8,283.32 |
| Amortized Cos | Fair Value | unrealized |
| 331,716.55 | 325,300.00 | 6,416.55 |
| Previous fair value adjustment | 1,866.77 | |
| Fair value adjustment | 8,283.32 |
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