On January 1 of the current year, Baker Corp. purchased $70,000 of Chocolate Inc. bonds. These...

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On January 1 of the current year, Baker Corp. purchased $70,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature in ten years on December 31. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%. Amortization Schedule Journal Entries and Balance Sheet Presentation a. Were the bonds purchased at a discount or premium? Premium + b. Prepare a bond amortization schedule for the current year (Year 1) and the following year (Year 2) using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Date Stated Market Premium Bond Interest Interest Amortization Amortized Cost Jan. 1, Year 1 72,767 x Dec. 31, Year 1$ 3,500 v $ 0 x $ Dec. 31, Year 2 0 x 0 x 3,500 v 3,298 x c. Prepare the journal entry for the purchase of the investment on January 1. Account Name Date Dr. Cr. Jan. 1, Year 1 Interest Receivable Cash 0 x To record purchase of investment. d. Prepare the journal entries to record interest received on December 31 of Year 1 and December 31 of Year 2. Date Account Name Dr. Cr. Dec. 31, Year 1 Investment in AFS Securities 0 x Fair Value Adjustment-TS 0 x Investment in TS 0 x To record interest received, Dec. 31, Year 2 Fair Value Adjustment-TS 0 x Interest Receivable Cash To record interest received. e. Indicate the carrying value of the Chocolate bonds on Baker's balance sheet on December 31, Year 2, assuming that the fair value of the bonds on that date was $72,800. $ 0 On January 1 of the current year, Baker Corp. purchased $70,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature in ten years on December 31. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%. Amortization Schedule Journal Entries and Balance Sheet Presentation a. Were the bonds purchased at a discount or premium? Premium + b. Prepare a bond amortization schedule for the current year (Year 1) and the following year (Year 2) using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar. Date Stated Market Premium Bond Interest Interest Amortization Amortized Cost Jan. 1, Year 1 72,767 x Dec. 31, Year 1$ 3,500 v $ 0 x $ Dec. 31, Year 2 0 x 0 x 3,500 v 3,298 x c. Prepare the journal entry for the purchase of the investment on January 1. Account Name Date Dr. Cr. Jan. 1, Year 1 Interest Receivable Cash 0 x To record purchase of investment. d. Prepare the journal entries to record interest received on December 31 of Year 1 and December 31 of Year 2. Date Account Name Dr. Cr. Dec. 31, Year 1 Investment in AFS Securities 0 x Fair Value Adjustment-TS 0 x Investment in TS 0 x To record interest received, Dec. 31, Year 2 Fair Value Adjustment-TS 0 x Interest Receivable Cash To record interest received. e. Indicate the carrying value of the Chocolate bonds on Baker's balance sheet on December 31, Year 2, assuming that the fair value of the bonds on that date was $72,800. $ 0

Answer rating: 100% (QA)

A First calculate the bond current price on Jan 12020 Current price Interest PVIFA4510 Par maturity ... View the full answer