Recording Entries for HTM Debt Securities— Effective Interest Method On January 1, 2020, Baker Corp. purchased $16,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%. c. Prepare the journal entry for the purchase of the investment on January 1, 2020. d. Prepare the journal entries to record interest received on December 31, 2020, and December 31, 2021. e. Indicate the carrying value of the Chocolate bonds on Baker’s December 31, 2021, balance sheet assuming that the fair value of the bonds on December 31, 2021, was $16,640. Note: List multiple debits or credits (when applicable) in alphabetical order. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). Date Account Name Dr. Cr. c. Jan. 1, 2020 Answer Answer Answer Answer d. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer Dec. 31, 2021 Answer Answer Answer Answer Answer Answer e. Carrying value of investment, Dec. 31, 2021

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.8MCP

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Recording Entries for HTM Debt Securities— Effective Interest Method

On January 1, 2020, Baker Corp. purchased $16,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%.

c. Prepare the journal entry for the purchase of the investment on January 1, 2020.
d. Prepare the journal entries to record interest received on December 31, 2020, and December 31, 2021.
e. Indicate the carrying value of the Chocolate bonds on Baker’s December 31, 2021, balance sheet assuming that the fair value of the bonds on December 31, 2021, was $16,640.

Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

	Date	Dr.	Cr.
c.	Jan. 1, 2020	Answer	Answer
		Answer	Answer
d.	Dec. 31, 2020	Answer	Answer
		Answer	Answer
		Answer	Answer
	Dec. 31, 2021	Answer	Answer
		Answer	Answer
		Answer	Answer

e. Carrying value of investment, Dec. 31, 2021

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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