7) ABC Company purchased $1,200,000 of 7%, 5-year bonds from XYZ, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 6%, and were held as available for sale. Record the entry to purchase the bonds. 2. Prepare the following schedule for the first two periods using the effective interest method of amortization. Date Cash rec’d Interest rev Premium amortization Carrying value 1/1/21 1,249,896 7/1/21 1/1/22
7)
ABC Company purchased $1,200,000 of 7%, 5-year bonds from XYZ, Inc. on January 1, 2021, with interest payable on July 1 and January 1. The bonds sold for $1,249,896 at an effective interest rate of 6%, and were held as available for sale.
- Record the entry to purchase the bonds.
2. Prepare the following schedule for the first two periods using the effective interest method of
amortization.
Date Cash rec’d Interest rev Premium amortization Carrying value
1/1/21 1,249,896
7/1/21
1/1/22
1. At 12/31/21, the bonds had a fair value of $1,250,000. Prepare the
value adjustment.
Bond is that debt instrument which is used by the organisation to finance its long term fund needs, Bond is issued at discount or premium depending upon market rate.
If the rate of interest in the market is higher than the coupon rate offered by the bond then the bond shall be issued at discount and vice versa.
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