1 answer

On January 1, 2020, Stellar Company purchased 12% bonds, having a maturity value of $312,000 for...

Question:

On January 1, 2020, Stellar Company purchased 12% bonds, having a maturity value of $312,000 for $335,654.22. 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. Stellar Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2020

$333,600

2023

$322,000

2021

$320,900

2024

$312,000

2022

$320,000
(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.

(Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a)

choose a transaction date

Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021

enter an account title to record transaction A

enter a debit amount

enter a credit amount

enter an account title to record transaction A

enter a debit amount

enter a credit amount

(b)

choose a transaction date

Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021

enter an account title to record interest received

enter a debit amount

enter a credit amount

enter an account title to record interest received

enter a debit amount

enter a credit amount

enter an account title to record interest received

enter a debit amount

enter a credit amount

(To record interest received)

enter an account title to record fair value adjustment

enter a debit amount

enter a credit amount

enter an account title to record fair value adjustment

enter a debit amount

enter a credit amount

(To record fair value adjustment)

(c)

choose a transaction date

Jan. 1, 2020Dec. 31, 2020Dec. 31, 2021

enter an account title to record transaction C

enter a debit amount

enter a credit amount

enter an account title to record transaction C

enter a debit amount

enter a credit amount


Answers

S.No. Date (a) Jan. 1,20 Credit Account Titles and Explanation Debt-Investment (Available for Sale) Cash Debit 335,654.22 335Notes Date Cash Received Interest Revenue Premium Amortized 1/1/20 31/12/20 $62,400 ($312,000/5) $62,400 Carrying Amount of B

.

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