On January 1, 2014, Green Bean Casserole purchased 5% bonds, having a maturity value of $500,000, for
Question:
On January 1, 2014, Green Bean Casserole purchased 5% bonds, having a maturity value of $500,000, for $428,938. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2014, and mature January 1, 2024, with interest receivable June 30 and December 31 of each year. Green Bean Casserole uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified available-for-sale. The fair value of the bonds at December 31 of each year end is as follows.
2014:$430,000
2015:$425,000
2016:$420,000
(a)Prepare the journal entry at the date of the bond purchase.
(b)Prepare the journal entries to record the interest received and recognition of fair value for 2014.
(c)Prepare the journal entry to record the recognition of fair value for 2015.