On December 31, 20X1, the Bavetta Company purchased $2 million of 5-year, 10% debentures for $2,162,220. The

Question:

On December 31, 20X1, the Bavetta Company purchased $2 million of 5-year, 10% debentures for $2,162,220. The market interest rate was 8%.

1. Using the balance sheet equation format, prepare an analysis of transactions for the investor’s records. Key your transactions as follows: (a) purchase, (b) first semiannual interest payment using effective interest amortization of bond premium, and (c) payment of maturity value.

2. Prepare the journal entries that correspond to (a), (b), and (c) of requirement 1.

3. Show how the bond-related accounts would appear on the balance sheets as of December 31, 20X1, and June 30, 20X2.

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...