Assume the same information as in E9-12, except that the bonds are carried at FV-OCI. The fair value of the bonds at December 31 of each year-end is as follows:
2016 ................................ $320,500
2017 ................................ $309,000
In E9-12
On January 1, 2016, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.72. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2016, and mature January 1, 2021, with interest receivable December 31 of each year. Hi and Lois Company uses the effective interest method to allocate unamortized discount or premium. The bonds are classified as amortized cost investments.
Instructions
(a) Prepare the journal entries to record the interest received and recognition of fair value for 2016.
(b) Prepare the journal entries to record the recognition of fair value for 2017 and assuming the sale of the investment for $307,200 on December 31, 2017.