Cullumber Company purchased, on January 1, 2017, as a held-to-maturity investmen
ID: 2552305 • Letter: C
Question
Cullumber Company purchased, on January 1, 2017, as a held-to-maturity investment, $81,000 of the 8%, 5-year bonds of Chester Corporation for $74,859, which provides an 10% return.
Prepare Cullumber’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used. (Round answers to 0 decimal places, e.g. 1,225. 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.
Account Titles and Explanation
Debit
Credit
(a)
(b)
No.
Account Titles and Explanation
Debit
Credit
(a)
(b)
Explanation / Answer
Solution:
Date
Account Titles and Explanation
Debit
Credit
Jan.1, 2017
Debt Investment - Chester Corporation (Held to Maturity)
$74,859
Cash
$74,859
(To record held to maturity investment)
OR
Debt Investment - Chester Corporation (Held to Maturity)
$81,000
Cash
$74,859
Discount on Investment (bal. fig)
$6,141
Dec.31, 2017
Cash (face value 81,000*Coupon Rate 8%)
$6,480
Discount on Investment (bal. fig) (Amortization)
$1,006
Interest Income (Carrying Value of Invst 74859*Effective Intt Rate 10%)
$7,486
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Date
Account Titles and Explanation
Debit
Credit
Jan.1, 2017
Debt Investment - Chester Corporation (Held to Maturity)
$74,859
Cash
$74,859
(To record held to maturity investment)
OR
Debt Investment - Chester Corporation (Held to Maturity)
$81,000
Cash
$74,859
Discount on Investment (bal. fig)
$6,141
Dec.31, 2017
Cash (face value 81,000*Coupon Rate 8%)
$6,480
Discount on Investment (bal. fig) (Amortization)
$1,006
Interest Income (Carrying Value of Invst 74859*Effective Intt Rate 10%)
$7,486
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