On January 1 2017 Sage Company purchased 11 bonds having a m

On January 1, 2017, Sage Company purchased 11% bonds, having a maturity value of $328,000, for $353,515.61. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Sage Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2017		$351,400		2020		$338,100
2018		$337,000		2021		$328,000
2019		$336,000

Solution

a) Debt investments-AFS 353515.61 Cash 353515.61 b) SCHEDULE OF BOND PREMIUM AMORTIZATION AND INTEREST REVENUE EFFECTIVE INTEREST METHOD Date Cash received Interest revenue Premium amortized Carrying amount 1/1/2017 353515.61 12/31/2017 36080.00 31816.40 4263.60 349252.01 12/31/2018 36080.00 31432.68 4647.32 344604.70 12/31/2019 36080.00 31014.42 5065.58 339539.12 12/31/2020 36080.00 30558.52 5521.48 334017.64 12/31/2021 36080.00 30062.36 6017.64 328000.00 JOURNAL ENTRIES: Cash 36080.00 Debt investments-AFS 4263.60 Interest revenue (353515.61*11%) 31816.40 Fair value adjustment-AFS 2147.99 Unrealized holding gain or loss-Equity (351400-349252.01) 2147.99 c) Unrealized holding gain or loss-Equity 9752.69 Fair value adjustment 9752.69 CALCULATION FOR FAIR VALUE ADJUSTMENT (12/31/2018) Amortized cost 344604.70 Fair value 337000.00 Unrealized holding gain or loss -7604.70 Already adjusted -2147.99 Fair value adjustement for 2018 -9752.69