On January 1, 2017, Whispering Company purchased 11% bonds, having a maturity va

Question

On January 1, 2017, Whispering Company purchased 11% bonds, having a maturity value of $313,000, for $337,348.74. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Whispering 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.

2017 $335,100 2020 $322,600 2018 $321,600 2021 $313,000 2019 $320,500

Explanation / Answer

Required journal entries are as prepared below:

Working:

Date Particulars L.F Amount ($) Amount ($) 2017 a Jan-01 Investment in Debts 337,349 Cash 337,349 (For cash invested in debts) b. Dec-31 Cash (313,000*11%) 34,430.00 Interest Revenue (337,348.74*9%) 30,361.39 Investment in Debts 4,068.61 (For interest for 1 year received with the annual instalment) Dec-31 Fair Value adjustment 1,819.87 Unrealized Holding gain or loss (335,100-337,348.74-4,069) 1,819.87 (For value adjusted) 2018 c. Dec-31 Cash 34,430.00 Interest Revenue (333,280.13*9%) 29,995.21 Investment in Debts 4,434.79 (For interest for 1 year received with the annual instalment) Unrealized Holding gain or loss 5,425.46 Fair Value adjustment 5425.46 (For value adjusted)

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