On January 1, 2014, Novotna Company purchased $439,000, 6% bonds of Aguirre Co.

Question

On January 1, 2014, Novotna Company purchased $439,000, 6% bonds of Aguirre Co. for $403,392. The bonds were purchased to yield 8% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2016, Novotna Company sold the bonds for $404,989 after receiving interest to meet its liquidity needs .Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. Prepare first 2 years amoritzation table. prepare july 1 and dec 31 journal entries.

Explanation / Answer

Bond Details Bond Purchase cost               403,392 Bond Face value               439,000 Discount on Bond Investment                 35,608 Interest Receivable semi annully @3%=                 13,170 Amortization Details Interest Receivable Interest Revenue @4% semi annually Discount Amortization Unamortized discount Bond Investment Carrying value of Bond Jan 1.2014.                 35,608        439,000           403,392 jul 1.2014.                 13,170                 16,136               2,966                 32,642        439,000           406,358 Dec 31.2014.                 13,170                 16,254               3,084                 29,558        439,000           409,442 jul 1.2015                 13,170                 16,378               3,208                 26,350        439,000           412,650 Dec 31.2015.                 13,170                 16,506               3,336                 23,014        439,000           415,986 Journal Entries Date Account Title Dr $ Cr $ Jan 1.2014. Investment in Bond               439,000 Discount on Bond Investment                 35,608 Cash              403,392 ( recording purchase of bond) jul 1.2014. Interest Revenue Receivable                 13,170 Interest Revenue                   16,136 Discount on Bond Investment                   2,966 Interest Revenue Receivable                 13,170 Cash                 13,170 ( recording interest revenue and cash receipt) Dec 31.2014. Interest Revenue Receivable                 13,170 Interest Revenue                   16,254 Discount on Bond Investment                   3,084 Interest Revenue Receivable                 13,170 Cash                 13,170 ( recording interest revenue and cash receipt)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.