Problem 171 Presented below is an amortization schedule rela

Problem 17-1 Presented below is an amortization schedule related to Bonita Company\'s 5-year, $110,000 bond with a 6% interest rate and a 4% yield, purchased on December 31, 2015, for $119,794. Bond Premium Carrying Amount of Bonds Cash Interest Date Received Revenue Amortization 12/31/15 12/31/16 $6,600 $4,792 12/31/17 6,600 4,719 12/31/18 6,600 4,644 12/31/19 6,600 4,566 12/31/20 6,600 4,485 $1,808 1,881 1,956 2,034 2,115 $119,794 117,986 116,105 114,149 112,115 110,000 The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end: 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20 Amortized cost $117,986 $116,105 $114,149 $112,115 $110,000 117,400 $118,000 $116,000 113,200 $110,000 Fair value (a) Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified as held-to-maturity securities. (b) Prepare the journal entry related to the held-to-maturity bonds for 2016 (c) Prepare the journal entry related to the held-to-maturity bonds for 2018. (d) Prepare the journal entry to record the purchase of these bonds, assuming they are classified as available-for-sale. (e) Prepare the journal entries related to the available-for-sale bonds for 2016 (f) Prepare the journal entries related to the available-for-sale bonds for 2018.

Solution

Journal Entry ;-

a) Purchase of Bond

Date - 12/31/15

6% Bonlta 5 years Bond A/c Dr. $119,794

To Cash/Bank Cr. $ 119,794

( being Bonlta\'s company 5 years bond purchased having face value $110,000 at $ 119,794)