On December 31, 2006 the Leslie Company held an investment in bonds of Kaufmann Company which it

Question:

On December 31, 2006 the Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, $100,000 face value bonds had a carrying value of $107,023.56 and were being amortized using the effective interest method based on a yield of 7%. Interest on these bonds is paid annually each December 31.

On December 31, 2007, after recording the interest earned, the Leslie Company decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105.

Required

Prepare the journal entries on December 31, 2007 to record the interest earned and the reclassification.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...