Question

Q (2) On 1/1/2020 Lee company purchased a 20,000, 2 years’ bond, 10% from Mark by paying 20351.82. the bond provides the bondholder with a 9% yield. Interest is received at the end of each year. Assume that the bond had a fair value at the end of 2020 total of 19,000. → Journalise the required journal entry for 2020 under the following two independent assumptions: a. Assume that the company intends to keep the bond until it collects the value of the bond b. Assume that the company intends to keep the bond until it collects the value of the bond but decided to subsequently measure the bond using fair value.

Answer 1

(a)

Date	Account Titles and Explanation	Debit	Credit
1/1/2020	Bond investment	20351.82
	Cash		20351.82
	(To record purchase of bond investment)
12/31/2020	Cash ($20000 x 10%)	2000.00
	Interest revenue ($20351.82 x 9%)		1831.66
	Bond investment		168.34
	(To record interest received and amortization)

(b)

Date	Account Titles and Explanation	Debit	Credit
1/1/2020	Bond investment	20351.82
	Cash		20351.82
	(To record purchase of bond investment)
12/31/2020	Cash ($20000 x 10%)	2000.00
	Interest revenue ($20351.82 x 9%)		1831.66
	Bond investment		168.34
	(To record interest received and amortization)
12/31/2020	Unrealized holding loss-OCI	1183.48
	Fair value adjustment		1183.48
	(To record investment at fair value)