Brief Exercise 173 Wildhorse Corporation purchased as a held

Brief Exercise 17-3 Wildhorse Corporation purchased, as a held-to-maturity investment, $70,000 of the 796, 6-year bonds of Harrison, Inc. for $77,181, which provides a 5% return. The bonds pay interest semiannually. Prepare Wildhorse\'s journal entries for (a) the purchase of the investment, and (b) the receipt of semiannual interest and premium amortization. Assume effective-interest amortization is used. (Round answers to o decimal places, e.g. 5,125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts.) at tbi Click if yeu would liske to Show Work for this question: Open Show Work OP ACCOUNTS Question Attempts: O of 5 usedF LA

Solution

Question no:17-3 Purchase Price =$77181 maturity value =$70,000 premium =$77181-$70000 =$7181 Semi annual interest received =$70,000*7%*6/12 =$2450 Amortisation of Premium under effective Interest Method\' Date Interest received Interest at market rate5% Amortisation of Premium Balance in Premium Balance in Investment Purchase 7181 77181 Year 1 Interest for 1st 6 months $2450 $1930 $520 $6661 $76661 $77181*0.05*6/12 $2450-$1930 $7181-520 $77181-520 Interest for next 6 months $2450 $1917 $533 $6128 $76128 $76661*0.05*6/12 $2450-$1917 $6661-$533 $76661-533 Journal Entries date Account titles & Explanation Debit Credit (a) Purchase of Investment Investment in harrison, Inc A/c $70000 Premium on Investment in harrison Inc A/c $7181             To Cash A/c $77181 (Being Investment in Harrison Inc has been recorded) (b) Semi annual interest receipt Cash A/c $2450        To Interest revenue A/c $1930         To Premium on Investment in harrison Inc A/c $520 (Being semi annual Interest received and premium Amortised)