Debt Securities
(Debt Securities)
P17-1 Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660.
| Date | Cash Received | Interest Revenue | Bond Premium Amortization | Carrying Amount of Bonds |
| 12/31/12 | $108,660 | |||
| 12/31/13 | $7,000 | $5,433 | $1,567 | 107,093 |
| 12/31/14 | 7,000 | 5,354 | 1,646 | 105,447 |
| 12/31/15 | 7,000 | 5,272 | 1,728 | 103,719 |
| 12/31/16 | 7,000 | 5,186 | 1,814 | 101,905 |
| 12/31/17 | 7,000 | 5,095 | 1,905 | 100,000 |
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.
| 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | |
| Amortized cost | $107,093 | $105,447 | $103,719 | $101,905 | $100,000 |
| Fair value | $106,500 | $107,500 | $105,650 | $103,000 | $100,000 |
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2012, assuming the bonds are classified as held-to-maturity securities.
(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2013.
(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2015.
(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale.
(e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2013.
(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2015.
Solution:
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