Problem 17-2 (Part Level Submission) On January 1, 2014, Novotna Company purchas
ID: 2460465 • Letter: P
Question
Problem 17-2 (Part Level Submission) On January 1, 2014, Novotna Company purchased $405,800, 6% bonds of Aguirre Co. for $357,636. The bonds were purchased to yield 9% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2019. Novotna Company uses the effective-interest method to amortize discount or premium. On January 1, 2016, Novotna Company sold the bonds for $359,228 after receiving interest to meet its liquidity needs. Collapse question part (a) Correct answer. Your answer is correct. Prepare the journal entry to record the purchase of bonds on January 1. Assume that the bonds are classified as available-for-sale. (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 Account Titles and Explanation Debit Credit Jan. 1, 2014 Entry field with correct answer Debt Investments Entry field with correct answer 357,636 Entry field with correct answer Entry field with correct answer Cash Entry field with correct answer Entry field with correct answer 357,636 Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS Attempts: 1 of 2 used Collapse question part (b) Prepare the amortization schedule for the bonds. (Round answers to 0 decimal places, e.g. 1,250.) Schedule of Interest Revenue and Bond Discount Amortization—Effective-Interest Method Bonds Purchased to Yield Date Interest Receivable Or Cash Received Interest Revenue Bond Discount Amortization Carrying Amount of Bonds 1/1/14 $ 7/1/14 $ $ 12/31/14 7/1/15 12/31/15 7/1/16 12/31/16 7/1/17 12/31/17 7/1/18 12/31/18 Total $ $ $
Explanation / Answer
(a)
Dr. Debt Investments A/c $357,636
Cr. Cash A/c $357,636
(b)
Journal entry on July 1, 2014
Dr. Cash A/c $12,174
Dr. Debt Investments A/c $3,920
Cr. Interest revenue A/c $16,094
Journal entry on December 31, 2014
Dr. Cash A/c $12,174
Dr. Debt Investments A/c $4096
Cr. Interest revenue A/c $16,270
Date Interest Receivable Interest Revenue Bond Discount Amortization Carrying Amount of Bonds 1/1/14 $357,636 7/1/14 $12,174 16,094 $3,920 $361,556 12/31/14 $12,174 16,270 $4096 $365,652 7/1/15 $12,174 16,454 $4280 $369,932 12/31/15 $12,174 16,647 $4473 $374,405 7/1/16 $12,174 16,848 $4674 $379,079 12/31/16 $12,174 17,059 $4885 $383,964 7/1/17 $12,174 17,278 $5,104 $389,068 12/31/17 $12,174 17,508 $5334 $394,402 7/1/18 $12,174 17,748 $5574 $399,976 12/31/18 $12,174 17,998 $5824 $405,800 Total $121,740 $169,904 $48,164