On January 1, 2017, Carla Company purchased 11% bonds, having a maturity value o
ID: 2334269 • Letter: O
Question
On January 1, 2017, Carla Company purchased 11% bonds, having a maturity value of $274,000, for $295,314.87. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Carla 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.
Explanation / Answer
Answer:-
= $274,000 * 11%
= $30140
= $295,314.87 * 9%
= $26,578.3383
= $30140 - $26,578.3383
= $3,561.66
= $293,000 - ($295,314.87 - $3,561.66)
= 293,000 - 291,753.21
= $1,246.79
= [($283,700 - $290,788.531 ) + $1,246.79]
= $ 5841.741
= $295,314.87 - $3,561.66
= $291,753.21
= $291,753.21 * 10%
= $ 29,175.321
= $30140 - $ 29,175.321
=$964.679
= $291,753.21 - $964.679
= $290,788.531
= $30140 - $29,078.85
= $1,061.15
= $290,788.531 - 1,061.15
= $ 289,727.381
no Date Accounts & explanation Debit Credit a). January 1, 2017 Debt investments $295,314.87 Cash $295,314.87 (Record purchase of bond ) b). December 31 ,2017 Cash= $274,000 * 11%
= $30140
Interest revenue= $295,314.87 * 9%
= $26,578.3383
Debt investments= $30140 - $26,578.3383
= $3,561.66
( Record interest received) Fair value adjustment= $293,000 - ($295,314.87 - $3,561.66)
= 293,000 - 291,753.21
= $1,246.79
Unrealized holding gain $1,246.79 (Record recognition of fair value) c). December 31,2018 Un realized holding gain or loss= [($283,700 - $290,788.531 ) + $1,246.79]
= $ 5841.741
Fair value adjustment = $ 5841.741 ( record recognition of fair value)