Comparison of the amortized cost and fair value of the bonds


Assignment: (Debt Securities) Presented below is an amortization schedule related to Kathy Baker Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2004, for $108,660              

Date  Cash Received  Interest Revenue Bond Premium Amortization  Carrying Amount of Bonds
31-12-04


$108,660
31-12-05 $7,000 $5,433 $1,567 107,093
31-12-06 7,000 5,354 1,646 105,447
31-12-07 7,000 5,272 1,728 103,719
31-12-08 7,000 5,186 1,814 101,905
31-12-09 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.          



31-12-05 31-12-06 31-12-07 31-12-08 31-12-09
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:

Q1. Prepare the journal entry to record the purchase of these bonds on December 31, 2004, assuming the bonds are classified as held-to-maturity securities.                           
                           
Q2. Prepare the journal entry(ies) related to the held-to-maturity bonds for 2005.                           

Q3. Prepare the journal entry(ies) related to the held-to-maturity bonds for 2007.                           

Q4. Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale.                           
Q5. Prepare the journal entry(ies) related to the available-for-sale bonds for 2005.                           

Q6. Prepare the journal entry(ies) related to the available-for-sale bonds for 2005.                           
                           
Q7. Prepare the journal entry(ies) related to the available-for-sale bonds for 2007.

Q8. Prepare the journal entry(ies) related to the available-for-sale bonds for 2005.                           
                           
Q9. Prepare the journal entry(ies) related to the available-for-sale bonds for 2007.

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Finance Basics: Comparison of the amortized cost and fair value of the bonds
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