5 Question Two -Part (a On January 1, 2014, Salim Company purchased aturity valu

Question

5 Question Two -Part (a On January 1, 2014, Salim Company purchased aturity value of $500,000, for $428,938. The bonds bondholders with a 7% y January 1, 2024, with interest receivable June 30 and December 31 of each year. company purchased 5% bonds, having a ield. They are dated J December 31 of e writh interest rece vre dated January 1, 2014, and mature Salim Company uses the effective-interest method to allocate unanm 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

a) January 1, 2014: Debt investments 428938 Cash 428938 (To record purchase of Held to maturity bonds) b) BOND AMORTIZATION SCHEDULE FOR 2 YEARS: Date 5% cash received 7% interest revenue Discount amortized Carrying amount of bonds 1/1/2014 0 0 0 428938 12/31/2014 25000 30026 5026 433964 12/31/2015 25000 30377 5377 439341 c) December 31, 2014: Cash 25000 Debt investments 5026 Interest revenue 30026

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