On January 1, 2017, Crane Company purchased 13% bonds, having a maturity value o

Question

On January 1, 2017, Crane Company purchased 13% bonds, having a maturity value of $321,000, for $344,727.36. The bonds provide the bondholders with a 11% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Crane 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 the bonds at December 31 of each year-end is as follows.

(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.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a)

(b)

(To record interest received)

(To record fair value adjustment)

(c)

Explanation / Answer

Journal Entry in the books of Crane Company S. no. Date Account Desription , Title Debit Credit a 01/01/2017 Debt Investment $344,727.36 Cash $344,727.36 To Record Purchase of Bond b 31/12/2017 Cash $41,730.00 Debt Investment $3,809.99 Interest Revenue $37,920.01 To record Interest Received 31/12/2017 Fair vlaue Adjustment $1,682.63 Unrealised Holding Gain $1,682.63 ($342600-$340917.37) To Record Recognition of Fair value d 31/12/2018 Unrealized Holding Gain/Loss $5,605.65 Fair Value Adjustment $5,605.65 ($329400-$336688.28)+1682.63 To Record Recognition of Fair Value Date Cash Received Interest Revenue Premium Amortized Carrying Value 01/01/2017 $344,727.36 31/12/2017 $41,730.00 $37,920.01 $3,809.99 $340,917.37 31/12/2018 $41,730.00 $37,500.91 $4,229.09 $336,688.28

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