Problem: (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
12/31/04 $108,660
12/31/05 $7,000 $5,433 $1,567 107,093
12/31/06 7,000 5,354 1,646 105,447
12/31/07 7,000 5,272 1,728 103,719
12/31/08 7,000 5,186 1,814 101,905
12/31/09 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.
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09
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.