Transfer Between Categories
Response to the following problem:
On December 31, 2009, the Leslie Company held an investment in bonds of Kaufmann Company which it categorized as being held to maturity. At that time, the 8%, $100,000 face value bonds had a carrying value of $107,023.56 and were being amortized using the effective interest method based on a yield of 7%. Interest on these bonds is paid annually each December 31.
On December 31, 2010, after recording the interest earned, the Leslie Company decided to reclassify the Kaufmann bonds to its available-for-sale category in anticipation of a major restructuring. At that time, the ending quoted market price for the bonds was 105.
Required
Prepare the journal entries on December 31, 2010, to record the interest earned and the reclassification.