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On January 1, 2011, Nora Company purchased a bond with a par value of $100,000 in the market for $107,986. The bond has a 5-year
On January 1, 2011, Nora Company purchased a bond with a par value of $100,000 in the market for $107,986. The bond has a 5-year life and has a stated interest rate of 10% payable annually. The market interest rate at January 1, 2011, is 8%. The following bond amortization schedule is provided for this bond.
Instructions:
- Prepare the journal entry to record the purchase of this bond on January 1, 2011, assuming the bond is held for investment
- Prepare the journal entry to record the interest on December 31, 2011
- Prepare the journal entry to record the sale of bond on January 1, 2013 for $103,704.
Answer for Exercise 5:
Date | Account Title | Debit | Credit |
a)Jan 1, 2011 |
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b)Dec 31, 2011 |
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c)Jan 1,2013 |
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Loss on sale of investment |
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Debt investment |
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\begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{5}{|c|}{\begin{tabular}{l} EFFECTIVE-INTEREST METHOD \\ 10% BOND DISCOUNTED AT 8% \end{tabular}} \\ \hline Date & \begin{tabular}{l} Cash \\ Received \end{tabular} & \begin{tabular}{l} Interest \\ Revenue \end{tabular} & Premium Amortized & \begin{tabular}{l} Carrying Amount \\ of Bonds \end{tabular} \\ \hline \begin{tabular}{c} 1/1/11 \\ 12/31/11 \\ 12/31/12 \end{tabular} & \begin{tabular}{c} $10,000 \\ 10,000 \end{tabular} & \begin{tabular}{l} $8,638 \\ $8,530 \end{tabular} & \begin{tabular}{c} $1,362 \\ 1,470 \end{tabular} & \begin{tabular}{c} $107,986 \\ $106,624 \\ 105,154 \end{tabular} \\ \hline \end{tabular}
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