On January 1, Sharp Company purchased $25,000 of Sox Company 6% bonds, at a time when...

 

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On January 1, Sharp Company purchased $25,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years, and pay interest annually on December 31. Sharp plans to and has the ability to hold the bonds until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Jan. 1 Date Dec. 31 Account Name To record the purchase of investment. Date Dec. 31 b. Prepare the entry for the receipt of interest on December 31. Account Name To record the receipt of interest. Debit Account Name 0 0 To adjust investment to fair value. Debit 0 0 Debit 0 0 OO Credit 0 OO c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). 0 Credit OOO Credit 0 0 0 0 0 ← On January 1, Sharp Company purchased $25,000 of Sox Company 6% bonds, at a time when the market rate was 5%. The bonds mature on December 31 in five years, and pay interest annually on December 31. Sharp plans to and has the ability to hold the bonds until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At December 31, the bonds are quoted at 98. Note: When answering the following questions, round answers to the nearest whole dollar. a. Prepare the entry for the purchase of the debt investment on January 1. Date Jan. 1 Date Dec. 31 Account Name To record the purchase of investment. Date Dec. 31 b. Prepare the entry for the receipt of interest on December 31. Account Name To record the receipt of interest. Debit Account Name 0 0 To adjust investment to fair value. Debit 0 0 Debit 0 0 OO Credit 0 OO c. Record the entry to adjust the investment to fair value on December 31, if applicable. Note: If a journal entry isn't required for the transaction, select "N/A-Debit" and "N/A-Credit" as the account names and leave the Dr. and Cr. answers blank (zero). 0 Credit OOO Credit 0 0 0 0 0 ←

Answer rating: 100% (QA)

Question Step 1 Face value 25000 Rate of interest 5 No of years 5 years Coupon rate 6250001500 PV o... View the full answer