In: Accounting
On January 1, 2017, Martinez Company purchased 13% bonds, having a
maturity value of $279,000, for $299,622.84. The bonds provide the
bondholders with a 11% yield. They are dated January 1, 2017, and
mature January 1, 2022, with interest received on January 1 of each
year. Martinez 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
December 31 of each year-end is as follows.
2017 $297,600 2020 $289,600
2018 $288,500 2021 $279,000
2019 $287,600
(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.
(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.)
No.
Date
Account Titles and Explanation
Debit
Credit
(a)
(b)
(To record interest received)
(To record fair value adjustment)
(c)
Journal Entry | |||
Date | Account Title & Explanation | Debit | Credit |
01/01/2017 | Debt Investment | $299,622.84 | |
Cash | $299,622.84 | ||
To Record Purchase of Bond | |||
31/12/2017 | Interest Receivable/Cash ($279000*13%) | $36,270.00 | |
Debt Investment | $3,311.49 | ||
Interest Revenue($299622.84*11%) | $32,958.51 | ||
TO Record Interest Receivable | |||
31/12/2018 | Fair Value Adjustment (Available For Sale) | $1,288.65 | |
To Unrealized Holding Gain or Loss-Equity | $1,288.65 | ||
=297600-(299622.84-3311.49) | |||
To Record Fair Value Adjustment | |||
31/12/2018 | Interest Receivable ($279000*13%) | $36,270.00 | |
Debt Investment | $3,534.00 | ||
Interest Revenue($297600*11%) | $32,736.00 | ||
TO Record Interest Receivable | |||
31/12/2017 | Unrealized Holding Gain or Loss-Equity | $5,566.00 | |
Fair Value Adjustment (Available For Sale) | $5,566.00 | ||
=288500-(297600-3534) | |||
To Record Fair Value Adjustment |