Assume the same information as in E17.3 except that the securities are classified as available-for-sale. The fair value of the bonds at December 31 of each year-end is as follows.

Instructions

a. Prepare the journal entry at the date of the bond purchase.

b. Prepare the journal entries to record the interest revenue and recognition of fair value for 2020.

c. Prepare the journal entry to record the recognition of fair value for 2021.

Data from E17.3?

On January 1, 2020, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Hi and Lois Company uses the eff ective-interest method to allocate unamortized discount or premium. The bonds are classifi ed in the held-to-maturity category.

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2020 2021 2022 2023 2024 $320,500 $309,000 $308,000 $310,000 $300,000