Question

On January 1, 2017, Bridgeport Company purchased 9% bonds having a maturity value of $330,000, for $357,062.64. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Bridgeport Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

a)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.)

b)Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

c)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.)

Answer 1

1-	jan 1 2017	Investment in bonds payable	357062.6
		premium on investment in bonds payable		27062.64
		cash		330000
2-	Bond amortization schedule
	Date	debit cash = face value*9%	credit interest revenue = carrying value of investment*market rate	debit premium on investment in bonds (premium amortized) = debit cash-interest revenue	balance in premium on investment in bonds to be amortized = opening balance- premium amortized	face value of investmebt in bonds	carrying value of investment in bond = face value + balance in premium to be amortized
	jan 1 2017	0	0	0	27062.64	330000	357062.6
	dec 31 2017	29700	24994.38	4705.615	22357.02	330000	352357
	Dec 31 2018	29700	24664.99	5035.008	17322.02	330000	347322
	dec 31 2019	29700	24312.54	5387.459	11934.56	330000	341934.6
	dec 31 2020	29700	23935.42	5764.581	6169.977	330000	336170
	dec 31 2021	29700	23531.9	6169.977	0	330000	330000
	6169.97 is adjusted for making the sum in balance in premium on bonds payable to zero this difference of 1.87 is due to decimal point calculation
3-	date	explanation	debit	credit
	dec 31 2017	cash	29700
		premium on bonds payable	4705.615
		interest revenue		34405.62