On january 1, 2014, Hummer Company purchased 5% bonds, having a maturity value o

Question

On january 1, 2014, Hummer Company purchased 5% bonds, having a maturity value of $500,000, for $428,938. The bonds provide the bondholders with a 7% yield. They are dated january1, 2014, and mature january 1, 2024, with interest receivable june 30 and december 31 of each year. Hummer company uses effevtive-interst method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category Prepare the journal entry at the bond purchase. Prepare the first 3 years of a bond amortization schedule. Prepare the journal entries to record the interest received and the amortization fo 2014.

Explanation / Answer

(a) Issue journal entry:

Debit Bond receivable $500,000

Credit Cash $428938

Credit Discount on Bond Receivable $ 71062

(b) First 3 years of a bond amortization schedule:

(c) Journal entry for Interest received and amortisation for 2014:

June 30, 2014,

Debit Cash $9987

Debit Discount on Bond Receivable $2513

Credit Interest received on Bond $12500

Dec 31, 2014,

Debit Cash $9900

Debit Discount on Bond Receivable $2600

Credit Interest received on Bond $12500

Period Cash interest received Interest receipt discount on bonds adjusted carrying value Jan 1 2014 $428938 June 30 2014 12500 15013 2513 431451 Dec 31 2014 12500 15100 2600 434051 June 30 2015 12500 15192 2692 436743 Dec 31 2015 12500 15286 2786 439529 June 30 2016 12500 15384 2884 442413 Dec 31 2016 12500 15484 2984 445397

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