Exercise 17-3 On January 1, 2017, Teal Company purchased 10% bonds having a matu

Question

Exercise 17-3 On January 1, 2017, Teal Company purchased 10% bonds having a maturity value of $220,000 for $237,567.22. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 or each year. Teal Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2017 Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.) Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method Cash Received Interest Revenue Premium Carrying Amount of Bonds Date 1/1/20 1/1/21 1/1/22 Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017. (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entcred. Do not indent manually, If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31, 2017 Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018. (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry“ for the account titles and enter 0 for the amounts.) DateAccount Titles and Explanation Debit Credit Dec. 31, 2018

Explanation / Answer

Teal Company

Date

Account Titles and Explanation

Debit

Credit

1-Jan-17

Debt Investments (Available-for-Sale)

$237,567.22

Cash

$237,567.22

(To record purchase of 10% bonds)

Date

cash Received

Interest Revenue

Premium Amortized

Carrying Amount of Bonds

1/1/2017

$237,567.22

1/1/2018

$22,000

$19,005.40

$2,995

$234,572.60

1/1/2019

$22,000

$18,765.80

$3,234.20

$231,338.40

1/1/2020

$22,000

$18,507.10

$3,492.30

$227,845.51

1/1/2021

$22,000

$18,228

$3,772

$224,073.15

1/1/2022

$22,000

$17,925.85

$4,073.12

$220,000

Workings –

Premium on bonds purchased = $237,567.22 – $220,000 = $17,567.22

Date

Account Titles and Explanation

Debit

Credit

31-Dec-17

Cash

$22,000.00

Debt Investments (Held-to-maturity)

$2,995.00

Interest Revenue

$19,005

(To record interest revenue and amortization)

Date

Account Titles and Explanation

Debit

Credit

31-Dec-17

Cash

$22,000.00

Debt Investments (Held-to-maturity)

$3,234.20

Interest Revenue

$18,766

(To record interest revenue and amortization)

Date

Account Titles and Explanation

Debit

Credit

1-Jan-17

Debt Investments (Available-for-Sale)

$237,567.22

Cash

$237,567.22

(To record purchase of 10% bonds)

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