Question

On January 1, 2017, Sweet Company purchased 12% bonds, having a maturity value of $325,000, for $349,639.81. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Sweet 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 $347,400 2020 $334,900 2018 $333,800 2021 $325,000 2019 $332,800

(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.

Answer 1

Bond amortisation schedule is as follows:-

Journal entries are as follows:-

Calculation of Fair value adjustment of 2018.