Question

Journalize

26. Purchased 12% bonds, having a maturity value of $705,000, for $522,744. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2006, and mature January 1, 2011, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Answer 1

Ans:

a.Record the Purchase of Bond

a.Record the Purchase of Bond Date General Journal Debit Credit January 1st 2006 Debt investment (or) investment in Bonds $522744 Cash $522744 Answer b Journal Entry Date Account Titles Debit Credit 2006 Cash 84,600 Discount on Bonds receivable/Debt Investment 52274.4 Interest Revenue 136874.4 Bond interest received = $705000*12% = $84,600 Discount on Bonds to be recognised in Year 1 = beginning book value of bond * bond yield % = $522744 * 10% = $52274.4 Answer c Journal Entry Date Account Titles Debit Credit 2007 Cash 84,600 Discount on Bonds Receivable/Debt Investment $47046.96 Interest Revenue 131646.96 Bond interest received = $705,000*12% = $84,600 Discount on Bonds to be recognised in Year 2 = beginning book value of bond * bond yield % = ($522744 - $52274.4) * 10% = $47046.96

Answer b
Journal Entry
Date	Account Titles	Debit	Credit
2006	Cash	84,600
	Discount on Bonds receivable/Debt Investment	52274.4
	Interest Revenue		136874.4
Bond interest received = $705000*12% = $84,600
Discount on Bonds to be recognised in Year 1 = beginning book value of bond * bond yield % = $522744 * 10% = $52274.4
Answer c
Journal Entry
Date	Account Titles	Debit	Credit
2007	Cash	84,600
	Discount on Bonds Receivable/Debt Investment	$47046.96
	Interest Revenue		131646.96
Bond interest received = $705,000*12% = $84,600
Discount on Bonds to be recognised in Year 2 = beginning book value of bond * bond yield % = ($522744 - $52274.4) * 10% = $47046.96