On January 1, 2018, Martinez Corp. purchased $1,520,000 of 6-year, 3% bonds for

Question

On January 1, 2018, Martinez Corp. purchased $1,520,000 of 6-year, 3% bonds for $1,439,628 to yield a market interest rate of 4%. Interest is received semi-annually on July 1 and January 1. Martinez’s year end is September 30. Martinez intends to hold the bonds until January 1, 2024, the date the bonds mature. The bonds’ trading value was $1,455,000 on September 30, 2018.

1: Prepare a bond amortization schedule for the term of the bonds.

$

b) Prepare the entry to record the receipt of interest on July 1, 2018

c) Prepare any adjusting entries required at September 30, 2018

d) Prepare the entry to record the maturity of the bonds on January 1, 2024

Semi-
Annual
Interest
Period Interest
Received Interest
Revenue Premium
Amortization
Amortized
Cost Jan. 1 2018
$

July 1 2018 $

$

$

$

Jan. 1 2019
$

$

$

$

July 1 2019
$

$

$

$

Jan. 1 2020
$

$

$

$

July 1 2020
$

$

$

$

Jan. 1 2021 $

$

$

$

July 1 2021
$

$

$

$

Jan. 1 2022 $

$

$

$

July 1 2022 $

$

$

$

Jan. 1 2023
July 1 2023
$

$

$

$

Jan. 1 2024 $

$

$

$

Explanation / Answer

1.

Interest received = Face value of bonds x Stated rate of interest (1.5% for 6 months)

Interest revenue = Amortized cost (Book value) x Market rate of interest (2% for 6 months)

Note: The entry shown for Jan. 1, 2024 is assuming the interest entry is recorded separately since nothing has been mentioned in the question regarding the same.

A B C D = C - B E Semi-annual Interest Period Interest received Interest revenue Premium amortization Amortized cost Jan. 1, 2018 1439628.00 July 1 2018 22800 28792.56 5992.56 1445620.56 Jan. 1, 2019 22800 28912.41 6112.41 1451732.97 July 1 2019 22800 29034.66 6234.66 1457967.63 Jan. 1, 2020 22800 29159.35 6359.35 1464326.98 July 1 2020 22800 29286.54 6486.54 1470813.52 Jan. 1, 2021 22800 29416.27 6616.27 1477429.79 July 1 2021 22800 29548.60 6748.60 1484178.39 Jan. 1, 2022 22800 29683.57 6883.57 1491061.96 July 1 2022 22800 29821.24 7021.24 1498083.20 Jan. 1, 2023 22800 29961.66 7161.66 1505244.86 July 1 2023 22800 30104.90 7304.90 1512549.76 Jan. 1, 2024 22800 30251.00 7451.00 152000.00

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