Question
Presented below is an amortization schedule related to Mets Companys 5-year, $100,000 bond with a 5% interest rate and a 6% yield, purchased on December
Presented below is an amortization schedule related to Mets Companys 5-year, $100,000 bond with a 5% interest rate and a 6% yield, purchased on December 31, 2020, for $95,788.
Carrying | ||||
Interest | Value of | |||
Date | Cash | Revenue | Investment | Investment |
1/1/2021 | 95788 | |||
12/31/2021 | 5000 | 5747.27 | 747 | 96535 |
12/31/2022 | 5000 | 5792.10 | 792 | 97327 |
12/31/2023 | 5000 | 5839.63 | 840 | 98167 |
12/31/2024 | 5000 | 5890.01 | 890 | 99057 |
12/31/2025 | 5000 | 5943.41 | 943 | 100000 |
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.
12/31/21 12/31/22 12/31/23 12/31/24 12/31/25
Amortized cost $96,535 $97,327 $98,167 $99,057 $100,000
Fair value $97,250 $97,100 $97,375 $99,500 $100,000
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2020, assuming the bonds are classified as held-to-maturity securities.
(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2021.
(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2023.
(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale.
(e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2021.
(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2023.
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