### Accounting Entries and Explanations**Note:**- Round answers to 2 decimal places, e.g., 2,525.25.- Credit account titles are automatically indented when an 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.#### (a) Entry on January 1, 2020- **Date**: Jan. 1, 2020 - **Account Titles and Explanation**: - Debt Investments - Cash - **Debit**: [Enter Amount] - **Credit**: [Enter Amount]#### (b) Entry on December 31, 2020- **Date**: Dec. 31, 2020 - **Account Titles and Explanation**: - Interest Receivable - Debt Investments - Interest Revenue - *(To record interest received)* - **Debit**: [Enter Amounts] - **Credit**: [Enter Amounts] - **Account Titles and Explanation**: - Fair Value Adjustment - Unrealized Holding Gain or Loss - Equity - *(To record fair value adjustment)* - **Debit**: [Enter Amount] - **Credit**: [Enter Amount]#### (c) Entry on December 31, 2021- **Date**: Dec. 31, 2021 - **Account Titles and Explanation**: - Unrealized Holding Gain or Loss - Equity - Fair Value Adjustment - **Debit**: [Enter Amount] - **Credit**: [Enter Amount]This format guides users through recording journal entries for accounting transactions, with specific emphasis on fair value adjustments and the recording of interest. **Educational Content on Bond Accounting****Overview:**On January 1, 2020, Stellar Company purchased 12% bonds with a maturity value of $325,000 for $349,639.81. These bonds provide bondholders with a 10% yield and are set to mature on January 1, 2025. Interest is received annually on January 1. Stellar Company applies the effective-interest method for allocating unamortized discounts or premiums. The bonds are categorized as available-for-sale. Below is a chart of the fair values of the bonds at each year-end.**Fair Values:**- **2020:** $347,400- **2021:** $333,800- **2022:** $332,800- **2023:** $334,900- **2024:** $325,000**Tasks:****(a) Journal Entry at Date of Bond Purchase**- **Objective:** Record the purchase of the bonds on January 1, 2020.**(b) Journal Entries for 2020**- **Objective:** Record interest revenue and the recognition of fair value.**(c) Journal Entry for Fair Value in 2021**- **Objective:** Record the recognition of the fair value for bonds as of December 31, 2021.This exercise illustrates the application of bond accounting principles, focusing on the acquisition cost differing from face value, adjustments via effective-interest method, and recognition of fair value changes under the available-for-sale classification.

On January 1, 2020, Stellar Company purchased 12% bonds, having a maturity value of $325,000 for $349,639.81. 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 o 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 $347,400 2023 $334,900 2021 $333,800 2024 $325,000 2022 $332,800 (a) Prepare the journal entry at the date of the bond purchase. (Б) 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.

On January 1, 2020, Stellar Company purchased 12% bonds, having a maturity value of $325,000 for $349,639.81. 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 o 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 $347,400 2023 $334,900 2021 $333,800 2024 $325,000 2022 $332,800 (a) Prepare the journal entry at the date of the bond purchase. (Б) 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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