On January 1, 2025, Wildhorse Company purchased 12% bonds having a maturity value of $275,000 for $295,849.07. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received on January 1 of each year. Wildhorse 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. 2025 $293,800 2028 $285,900 2026 $284,800 2029 $275,000 2027 $283,800 (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 2025. (c) Prepare the journal entry to record the recognition of fair value for 2026. (List all debit entries before credit entries. 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 O for the amounts. Round answers to 2 decimal places, e.g. 1225.25.)

On January 1, 2025, Wildhorse Company purchased 12% bonds having a maturity value of $275,000 for $295,849.07. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received on January 1 of each year. Wildhorse 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. 2025 $293,800 2028 $285,900 2026 $284,800 2029 $275,000 2027 $283,800 (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 2025. (c) Prepare the journal entry to record the recognition of fair value for 2026. (List all debit entries before credit entries. 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 O for the amounts. Round answers to 2 decimal places, e.g. 1225.25.)

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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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

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On January 1, 2025, Wildhorse Company purchased 12% bonds having a maturity value of $275,000 for $295,849.07. The bonds
provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received on
January 1 of each year. Wildhorse 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.
2025
$293,800 2028
$285,900
2026
$284,800
2029
$275,000
2027
$283,800
(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 2025.
(c)
Prepare the journal entry to record the recognition of fair value for 2026.
(List all debit entries before credit entries. 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 O for the amounts. Round answers to 2 decimal places, e.g. 1225.25.)

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