On January 1, 2014, Novotna Company purchased $432,800, 8% bonds of Aguirre Co. for $383,865. The bonds
Question:
On January 1, 2014, Novotna Company purchased $432,800, 8% bonds of Aguirre Co. for $383,865. The bonds were purchased to yield 11% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2016, Novotna Company sold the bonds for $385,445 after receiving interest to meet its liquidity needs.
Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale.
Date | Account Titles & Explanation | Debit | Credit |
Jan 1 2014 | Debt Investments | 383,865 | |
Cash | 383,865 |
Prepare the amortization schedule for the bonds. (Round answers to 0 decimal places, e.g. 1,250.)
Schedule of Interest Revenue and Bond Discount | ||||
Date | Interest Receivable | Interest Revenue | Bond | Carrying |
1/1/14 | 0 | 0 | 0 | 383,865 |
7/1/14 | 17,312 | ?? | ?? | ?? |
12/31/14 | 17,312 | ?? | ?? | ?? |
7/1/15 | 17,312 | ?? | ?? | ?? |
12/15/15 | 17,312 | ?? | ?? | ?? |
7/1/16 | 17,312 | ?? | ?? | ?? |
12/31/16 | 17,312 | ?? | ?? | ?? |
7/1/17 | 17,312 | ?? | ?? | ?? |
12/31/17 | 17,312 | ?? | ?? | ?? |
7/1/18 | 17,312 | ?? | ?? | ?? |
12/31/18 | 17,312 | ?? | ?? | ?? |
Total | 173,120 | ?? | ?? | ?? |
(c) | Prepare the journal entries to record the semiannual interest on (1) July 1, 2014, and (2) December 31, 2014. | |
(d) | If the fair value of Aguirre bonds is $387,445 on December 31, 2015, prepare the necessary adjusting entry. (Assume the fair value adjustment balance on January 1, 2015, is a debit of $3,336.) | |
(e) | Prepare the journal entry to record the sale of the bonds on January 1, 2016. |
No. | Date | Account Titles and Explanation | Debit | Credit |
c | (1) July 1, 2014 | Cash | 17,312 | |
Debt Investments | ??? | |||
Interest Revenue | ??? | |||
(2) Dec 31, 2014 | Interest Receivable | 17,312 | ||
Debt Investments | ??? | |||
Interest Revenue | ??? | |||
d | Dec 31, 2015 | Unrealized Holding Gain or Loss - Equity | ??? | |
Fair Value Adjustment | ??? | |||
e | Jan 1, 2016 | Cash | ??? | |
Loss on Sale of Investments | ??? | |||
Debt Investments | ??? |