John and Martha Hitt Company purchased bonds to be held to maturity. The following details pertain:


QUESTION :

John and Martha Hitt Company purchased bonds to be held to maturity. The following details pertain:

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John and Martha Hitt Company purchased bonds to be held to maturity. The following details pertain:
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Face value

Stated interest rate

Yield rate

Maturity date

Date of purchase

Interest receipts due

Method of amortization

Purchase price

$100,000.00

7%

10%

January 1, 2017

January 1, 2014

Annually on January 1

Effective interest

$92,539.95

Instructions

(a) Compute the amount of purchase premium or discount.

(b) Prepare the journal entry for the purchase of the bonds. Do not record the premium or discount separately

in the accounts.

(c) Prepare the amortization schedule for these bonds.

(d) Prepare all of the journal entries (subsequent to the purchase date) for 2014 and 2015 that relate to these

bonds. Assume the accounting period coincides with the calendar year. Assume reversing entries are not used.

(e) Prepare the journal entry to record the sale of the bonds, assuming they are sold on January 1, 2016

for $102,000.00. Assume the sale occurs immediately after the annual interest receipt.

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