Chapter 12 Example 3) Amortized Cost Model On January 1, 2022, XYZ Co. purchases $100,000 of 5-year, 6% bonds issued by ABC Co. The face value of each bond is $1,000. The interest is payable semi-annually on each June 30 and December 31. The market interest rate for similar bonds is 8%. XYZ Co. has a December 31 year-end. A. Calculate the market value of the bonds on January 1, 2022. ($67,556 +24,333 = $ 91,889) B. Answer the following requirements from the perspective of XYZ Co. (the investor): 1. Prepare the journal entry to record the purchase of the bonds on January 1, 2022. 2. Construct a bond amortization table for the bonds that shows the amounts of interest revenue and amortization of the discount at each June 30 and December 31. 3. Prepare journal entries on June 30, 2022, and December 31, 2022. 4. On December 31, 2026, XYZ Co. receives the principal of $100,000 plus the final coupon payment of $3,000. Prepare all necessary journal entries. 5. Instead, assume that on January 1, 2025, when the carrying value of the bonds is $96,371, XYZ sells all the bonds at 98 (i.e., $98,000). Prepare all necessary journal entries. B 2. Interest Revenue Discount Carrying Value Date Cash Received (Effective Interest) amortized of Bonds 01/01//2022 $91,889 06/30/2022 $3,000 $3,676 $676 92,565 12/31/2022 3,000 3,703 703 93,268 06/30/2023 3,000 3,731 731 93,999 12/31/2023 3,000 3,760 760 94,759 06/30/2024 3,000 3,790 790 95,549 12/31/2024 3,000 3,822 822 96,371 06/30/2025 3,000 3,855 855 97,226 12/31/2025 3,000 3,889 889 98,115 06/30/2026 3,000 3,925 925 99,040 12/31/2026 3,000 3,962 962 100,000 8,111 * The sum of the 10 amounts shown equals $8,113. The $2 difference is due to rounding.