Question

On January 1, 2019, Hart Corporation purchased 1,000 of ABC 8%, P1,000 callable bonds for P877,068, which represented a 10% effective interest rate. The bonds are dated January 1, 2019, and mature on January 1, 2029. Interest is payable annually on January 1. On January 1, 2020, Hart sold half of the bonds at 101. Assume that Hart uses the effective interest method of amortization and that its fiscal year ends December 31 Instruction: Determine the following:

1. Interest income for the year ended December 31, 2019

2. Carrying value of the bonds as of December 31, 2019

3. Interest income for the year ended December 31, 2020

4. Carrying value of the bonds as of December 31, 2020

5. Gain or loss on sale of the bonds.

6. Give the entry to adjust the allowance for doubtful accounts at December 31, 2020.

Answer 1

	FV	Bond Face Value=1000*1000	1,000,000
	PV	Bond Purchase	877,068
	FV-PV	Bond Discount (1000000-877068)	122,932
		PRICE OF BOND ON JANUARY 1, 2019	877,068
			AMORTIZATION SCHEDULE
				8%*1000000	10% *Previous Book value
			A	B	C	D=C-B	E	F	G=F-E
			Date	Cash Received	Interest Income	Amortization of Discount	Credit Balance in Bond Discount Account	Debit Balance in Debt Security Account	Book value of the Bond
			Jan1,2019				122,932	1,000,000	877,068
			Dec,31,2019	80,000	87,707	7,707	115,225	1,000,000	884,775
			Jan1,2020				57,613	500,000	442,387
			Dec31,2020	40,000	44,239	4,239	53,374	500,000	446,626
		JOURNAL ENTRY ON Jan 1, 2019
		ACCOUNT TITLES	DEBIT	CREDIT
		Held to Maturity Debt Security	1,000,000
		Bond Discount		122,932
		Cash		877,068
		JOURNAL ENTRY ON December 31, 2019
		ACCOUNT TITLES	DEBIT	CREDIT
		Cash	80,000
		Bond Discount	7,707
		Interest Income		87,707
		JOURNAL ENTRY ON December 31, 2020
		ACCOUNT TITLES	DEBIT	CREDIT
		Cash	40,000
		Bond Discount	4,239
		Interest Income		44,239
		1. Interest income for the year ended December 31, 2019	87,707
		2. Carrying value of the bonds as of December 31, 2019	884,775
		3. Interest income for the year ended December 31, 2020	44,239
		4. Carrying value of the bonds as of December 31, 2020	446,626		ekkarill92 Next > < Previous Related Solutions On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a... On January 1, 2019, ABC Company issued bonds with a face value of $1,000 and a coupon rate of 8 percent. The bonds mature in 2 years and pay interest on June 30 and December 31 each year. The market rate is 12% annually. The present value of $1 table and the present value of annuity of $1 table are provided on the next page. Round your final answers to the nearest whole dollar. (1) What is the issue price... ABC Inc. purchased machinery and equipment in the amount of $125,000 on January 1, 2019. ABC... ABC Inc. purchased machinery and equipment in the amount of $125,000 on January 1, 2019. ABC will amortize this asset straight line over 18 years, with no salvage value. 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