Exercise 173 On January 1 2017 Cheyenne Company purchased 8

Exercise 17-3

On January 1, 2017, Cheyenne Company purchased 8% bonds having a maturity value of $280,000, for $303,589.66. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Cheyenne Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Date

Account Titles and Explanation

Debit

Credit

Schedule of Interest Revenue and Bond Premium Amortization
Effective-Interest Method

Date

Cash
Received

Interest
Revenue

Premium
Amortized

Carrying Amount
of Bonds

Date

Account Titles and Explanation

Debit

Credit

Date

Account Titles and Explanation

Debit

Credit

On January 1, 2017, Cheyenne Company purchased 8% bonds having a maturity value of $280,000, for $303,589.66. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Cheyenne Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Solution

Date General Journal Debit Credit 01/01/2017 Debt Investments (Held-to-Maturity) 303,589.66 Cash 303,589.66 Schedule of Interest Revenue and Bond Premium Amortization Effective-Interest Method 8% Bonds Sold to Yield 6% Date Cash Received Interest Revenue Premium Amortization Carrying Amountof Bonds 01/01/2017 0 0 0 303,589.66 01/01/2018 22400 18215.38 4184.62 299405.04 01/01/2019 22400 17964.30 4435.70 294969.34 01/01/2020 22400 17698.16 4701.84 290267.50 01/01/2021 22400 17416.05 4983.95 285283.55 01/01/2022 22400 17117.01 5282.99 280000 Date General Journal Debit Credit Dec 31 2017 Cash 22400 Debt Investments (Held-to-Maturity) 4184.62 Interest Revenue 18215.38 Dec 31 2018 Cash 22400 Debt Investments (Held-to-Maturity) 4435.70 Interest Revenue 17964.30