Max’s Company invests in the b
Max’s Company invests in the bonds issued by CarmCorp. On 1/1/20Max buys $60,000 of 5% bonds that pay interest on 1/1. They maturein 10 years and yield 6%. Max pays $55,584. On 12/31/20, the fairvalue of the bonds is $60,800. Assuming the bonds are classified as”Trading”, prepare the journal entries for 1/1/20, 12/31/20, and1/1/21. You may omit (leave out) the closing entries
Answer:
Max’s Company | |||
Date | General journal | Debit | Credit |
1/1/20 | Investment in CarmCorp Bonds (Trading) | 60,000 | |
Discount on bond investment (60000-55584) | 4,416 | ||
Cash | 55,584 | ||
(To record purchase of bond.) | |||
12/31/20 | Interest receivable (60000*5%) | 3,000 | |
Discount on bond investment | 335 | ||
Interest revenue (55584*6%) | 3,335 | ||
(To record accrue interestreceivable) | |||
12/31/20 | Fair value Adjustment – Trading | 4,881 | |
Unrealized holding Gain on bond investment – NI [net income] | 4,881 | ||
(To record Fair value Adjustment.)(60800-55919) | |||
Amortized cost = 60000-(4416-335) = 55919 | |||
1/1/21 | Cash | 3,000 | |
Interest receivable (60000*5%) | 3,000 | ||
(To record interest received.) |