John and Martha Hitt Company purchased bonds to be held to maturity. The following details pertain:

Face value Stated interest rate Yield rate Maturity date Date of purchase Interest receipts due Method of amortization Purchase price

$100,000.00 7% 10% January 1, 2017 January 1, 2014 Annually on January 1 Effective interest $92,539.95

Instructions

(a) Compute the amount of purchase premium or discount.

(b) Prepare the journal entry for the purchase of the bonds. Do not record the premium or discount separately

in the accounts.

(c) Prepare the amortization schedule for these bonds.

(d) Prepare all of the journal entries (subsequent to the purchase date) for 2014 and 2015 that relate to these

bonds. Assume the accounting period coincides with the calendar year. Assume reversing entries are not used.

(e) Prepare the journal entry to record the sale of the bonds, assuming they are sold on January 1, 2016

for $102,000.00. Assume the sale occurs immediately after the annual interest receipt.