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On January 1, 2018, Jones Jeans Co. buys a 8 year $600,000 face value bond from...

On January 1, 2018, Jones Jeans Co. buys a 8 year $600,000 face value bond from Rawlings Inc. The bonds pay semi-annual interest on January 1 and July 1. The bonds are classified as held to maturity. Prepare the following journal entries:

A)Find the price of the bond

B)Entry at acquisition.

C)Entry to recognize semi-annual interest revenue at 7/1/18.

D)Entry necessary if market value of the bond is $628,000 at 12/31/17.

Coupon = 9% Yield=8%

Solutions

Expert Solution

Hence Bond Price is $ 634,957

Debt held to maturity is shown on the balance sheet at the amortized acquisition cost.

B) Entry at acquisition:

Date Particulars Dr. / Cr. Amount
Jan 1, 2018 Investments in Bond Debit $   600,000
Premium on Bond Debit $     34,957
Bank Credit $   634,957
(Being purchase of Rawlings Inc 8 year face value $600,000 Bonds at premium of $ 34,957)

C)Entry to recognize semi-annual interest revenue at 7/1/18.

Date Particulars Dr. / Cr. Amount
Jul 1, 2018 Bank Debit $   27,000
Premium on Bond Credit $     1,602
Interest Income Credit $   25,398
(Being receipt of interest income from Rawlings Inc bonds)

D)Entry necessary if market value of the bond is $628,000 at 12/31/17:

Bonds held to maturity is recorded at the market value (original cost) on the date of acquisition. All changes in market value are ignored for bonds held to maturity.

ekkarill92 answered 1 year ago
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