Question
The following schedule of premium amortization on a bond investment has been provided to you. Issue date is 1/1/2013, and maturity date is 12/31/17. Interest is received on Dec 31 of each year.
Effective-Interest Method of amortization
12% (stated rate) Bonds purchased to Yield 10%
Face value of the bond investment = $300,000
Date
Cash Interest Received
Interest Revenue recorded
Premium Amortized
Unamortized Premium
Carrying
Value of Investment
1/1/13
—
—
—
$22,744.44
$322,744.44
12/31/13
$36,000
$32,274.44
$3,725.56
$19,018.88
319,018.88
12/31/14
36,000
31,901.89
4,098.11
$14,920.77
314,920.77
12/31/15
36,000
31,492.08
4,507.92
$10,412.85
310,412.85
12/31/16
36,000
31,041.29
4,958.71
$5,454.14
305,454.14
12/31/17
36,000
30,545.86
5,454.14
0
300,000.00
The securities are classified as available-for-sale. The fair value of the bonds at December 31 of each year-end is as follows:
2013
$320,500
2014
$309,000
2015
$308,000
2016
$310,000
2017
$300,000
Prepare the journal entries to record the year-end recognition of fair value for each of the five years.
|
Date |
Cash Interest Received |
Interest Revenue recorded |
Premium Amortized |
Unamortized Premium |
Carrying Value of Investment |
|
1/1/13 |
— |
— |
— |
$22,744.44 |
$322,744.44 |
|
12/31/13 |
$36,000 |
$32,274.44 |
$3,725.56 |
$19,018.88 |
319,018.88 |
|
12/31/14 |
36,000 |
31,901.89 |
4,098.11 |
$14,920.77 |
314,920.77 |
|
12/31/15 |
36,000 |
31,492.08 |
4,507.92 |
$10,412.85 |
310,412.85 |
|
12/31/16 |
36,000 |
31,041.29 |
4,958.71 |
$5,454.14 |
305,454.14 |
|
12/31/17 |
36,000 |
30,545.86 |
5,454.14 |
0 |
300,000.00 |
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