5 Question Two -Part (a (10 marks) On January 1, 2014, Salim Company purchased m

Question

5 Question Two -Part (a (10 marks) On January 1, 2014, Salim Company purchased maturity value 2014, Salinco bondholders with a 7% yield. Th January 1, 2024, with interest receivable June 30 and December 31 of each year. 590 bonds, having a 00,0 00, for $428,938. The bonds provide the ey are dated January 1, 2014, and mature Salim Company uses the effective-interest method to allocate una amortized discount or premium. The bonds are classified in the held-to-maturity category Instructions (a) Prepare the journal entry at the date of the bond purchase. (2 marks) (b) Prepare the first 2 years of a bond amortization schedule. (c) Prepare the journal entries to record the interest received and the (4 marks) amortization for 2014 (4 marks)

Explanation / Answer

Answer:

(a)Long Term investment A/c Dr 428938

To Cash 428938

(Being bond purchased)

(b) Bond Amortization Shedule

* 500000*0.05.*6/12= 12500

(C) JOurnal Entry

06/30/2014 Cash 12500

Debt INvestment 2513

To Interest REvenue 15013

31/12/2014 Cash 12500

Debt INvestment 2601

To Interest Revenue 15101

Date Cash Received Interest Received Bond Discount Amount Carring Amount 1/1/2014 428938 6/30/14 12500* 15013 2513 431451 12/31/14 12500 15101 2601 434052 6/30/15 12500 15192 2692 436744 12/31/15 12500 15286 2786 439530

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