Exercise 17-4 On January 1, 2017, Ayayai Company purchased 12% bonds, having a m

Question

Exercise 17-4 On January 1, 2017, Ayayai Company purchased 12% bonds, having a maturity value of $276,000, for $296,924.88. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature Januar 2022, with interest received on January 1 of each year. Ayayai 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 thie bonds at December 31 of each year-end is as follows. s294,800 2020 $285,000 2021 $284,100 $286,100 $276,000 2017 2018 2019 (a) (b) (c) Prepare the journal entry at the date of the bond purchase. Prepare the journal entries to record the interest revenue and recognition of fair value for 2017 Prepare the journal entry to record the recognition of fair value for 2018 (Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are autonatically 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.) No. Date Account Titles and Explanation Debit Credit (To record interest received) (To record fair value adjustment)

Explanation / Answer

SOLUTION

* 3.

$293,497.37 *10% = $29,349.74 - $33,120 = $3,770.26

= $293,497.37 - $3,770.26 = $289,727.11

S.No. Account titles and Explanation Debit ($) Credit ($) 1. Debt Investments 296,924.88 Cash 296,924.88 (To record the purchase of bonds) 2. Cash ($276,000 * 12%) 33,120.00 Debt Investments 3,427.51 Interest Revenue ($296,924.88 * 10%) 29,692.49 (To record interest received) Fair Value Adjustment ($294,800 - ($296,924.88 - $3,427.51 )) 1,302.63 Unrealized Holding Gain or Loss-Equity 1,302.63 (To record fair value adjustment) 3.* Unrealized Holding Gain or Loss - Equity 3,424.48 Fair Value Adjustment 3,424.48

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