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On January 1, 2020, Novotna Company purchased $400,000, 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% inter-est. Interest is
On January 1, 2020, Novotna Company purchased $400,000, 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% inter-est. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025.
Novotna Company uses the effective- interest method to amortize discount or premium. On January 1, 2022,
Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.
Instructions
- Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale.
- Prepare the amortization schedule for the bonds.
- Prepare the journal entries to record the semiannual interest on July 1, 2020, and December 31, 2020.
- If the fair value of Aguirre bonds is $372,726 on December 31, 2021, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on December 31, 2020, is a debit of $3,375.)
- Prepare the journal entry to record the sale of the bonds on January 1, 2022.
On January 1, 2020, Novotna Company purchased $400,000, 8% bonds of Aguirre Co. for $369,114. The bonds were purchased to yield 10% inter-est. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2025.
Novotna Company uses the effective- interest method to amortize discount or premium. On January 1, 2022,
Novotna Company sold the bonds for $370,726 after receiving interest to meet its liquidity needs.
Instructions
- Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale.
- Prepare the amortization schedule for the bonds.
- Prepare the journal entries to record the semiannual interest on July 1, 2020, and December 31, 2020.
- If the fair value of Aguirre bonds is $372,726 on December 31, 2021, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on December 31, 2020, is a debit of $3,375.)
- Prepare the journal entry to record the sale of the bonds on January 1, 2022.
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