Question

Problem 17-1 Presented below is an amortization schedule related to Kingbird Company's 5-year, $110,000 bond with a 8% interest rate and a 5 % yield , purchased on December 31, 2015, for $124,287 Carrying Bond Premium Cash Interest Amount Received of Bonds Date Revenue Amortization 12/31/15 $124,287 12/31/16 $8,800 $6,214 $2,586 121,701 8,800 6,085 2,715 118,986 12/31/17 12/31/18 2,851 8,800 5,949 116,135 12/31/19 8,800 5,807 2,993 113,142 8,800 110,000 12/31/20 5,658 3,142 The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end: 12/31/16 12/31/19 12/31/17 12/31/18 12/31/20 Amortized cost $116,135 $121,701 $118,986 $113,142 $110,000 $110,000 $121,100 $118,200 Fair value $121,100 $114,200 Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified as held-to-maturity securities (a) Prepare the journal entry related to the held-to-maturity bonds for 2016. (b) Prepare the journal entry related to the held-to-maturity bonds for 2018. Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale Prepare the journal entries related to the available-for-sale bonds for 2016 Prepare the journal entries related to the available-for-sale bonds for 2018 (c) (d) (e) (f) (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

A)	12/31/2015	Investments in Bonds	Dr	$ 124,287.00
		To Bank Account	Cr		$ 124,287.00
		(being bond purchased of $110,000 5 year bond with 5% yield at value of $124,287)
B)	12/31/2016	Bank Account	Dr	$      8,800.00
		To Interest Income	Cr		$      6,214.00
		To Investment in Bonds	Cr		$      2,586.00
		(To record receipt of Interest and premium amortisation)
C)	12/31/2018	Bank Account	Dr	$      8,800.00
		To Interest Income	Cr		$      5,949.00
		To Investment in Bonds	Cr		$      2,851.00
		(To record receipt of Interest and premium amortisation)
d)	12/31/2015	Available for Sale Investment	Dr	$ 124,287.00
		To Bank Account	Cr		$ 124,287.00
		(being bond purchased of $110,000 5 year bond with 5% yield at value of $124,287)
E-1)	12/31/2016	Bank Account	Dr	$      8,800.00
		To Interest Income	Cr		$      6,214.00
		To Available for Sale Investment	Cr		$      2,586.00
		(To record receipt of Interest and premium amortisation)
E-2)	12/31/2016	Loss on Available for Sale Investment	Dr	$          601.00
		To Available for Sale Investment	Cr		$          601.00
		(Being the loss in Fair value and amortised cost charged to Other Comprehensive income
F-1)	12/31/2018	Bank Account	Dr	$      8,800.00
		To Interest Income	Cr		$      5,949.00
		To Available for Sale Investment	Cr		$      2,851.00
		(To record receipt of Interest and premium amortisation)
F-2)	12/31/2018	Available for Sale Investment	Dr	$      2,065.00
		To Gain on Available for Sale Investment	Cr		$      2,065.00
		(Being Gain in Fair value and amortised cost recognised in other Comprehensive income