On January 1, 2020, Sandhill 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 of each year. Sandhill 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 $334,9002021 $333,800 2024 $325,0002022 $332,800 (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.)

) Date General Journal Debit Credit Jan. 1, 2020 Debt investments 349,639.81 Cash 349,639.81 (To record the bond purchase) (b) Dec. 31, 2020 Interest receivable ($325,000 x 12%) 39,000 Interest revenue ($349,639.81x 10%) 34,964 Debt investments 4,036 (To record interest) Dec. 31, 2020 Fair value adjustment [$347,400- ($349,639.81- $4036)] 1,796.19 Unrealized holding gain or loss-equity 1,796.19 (To record fair value adjustment) (c) Dec. 31, 2021 Unrealized holding gain or loss-equity 9,160.38 Fair value adjustment 9,160.38 (To record fair value adjustment)Working: Carrying value on Dec. 31, 2020 = $349,639.81- $4,036= $345,603.81 Amortization during 2021 = $39,000- ($345,603.81x 10%) = $39,000- $34560.38= $4,439.62 Carrying value on Dec. 31, 2021 = $345,603.81 - $4,439.62= $341,164.19 Fair value adjustment balance required = $341,164.19- $333,800= $7364.19(credit) Existing fair value adjustment balance = $1,796.19(debit) Adjustment required = $1,796.19+ $7364.19= $9,160.38(credit)

Answered: On January 1, 2020, Sandhill Company…

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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On January 1, 2020, Sandhill 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 of each year. Sandhill 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.
(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.)

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