Question

Harper Company issued $150,000 of 6% bonds, dated January 1, 2020 and maturing on December 31,...

Harper Company issued $150,000 of 6% bonds, dated January 1, 2020 and maturing on December 31, 2022. The company will pay interest annually, every December 31 through December 31, 2022. Harper Company chose to report the bond liability using the Fair Value Option. As a result of changes in the company's risk profile, the bond price was 101 on December 31, 2020 and 100 ½ on December 31, 2021. Below, please find an amortization table for Harper Company's bonds.

Date Cash Int. Exp. Prem. Amort.      Carry Value

01/01/20 158,325.81

12/31/20   9,000.00  6,333.04        2,666.97         155,658.84

12/31/21   9,000.00  6,226.35        2,773.65         152,885.19

12/31/22   9,000.00  6,114.81        2,885.19         150,000.00

Requirement:

The Journal entry to mark the bonds to market on December 31, 2020 and 2021. For full credit, please show all the work, including the table you are creating to derive your answer.

Business   Accounting   
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Homework Answers

Answer #1
General Journal
Date Particular Debit Credit
2020
Dec 31 Bonds Payable -1491.88
Unrealised gain or loss -1491.88
Mark to market
2021
Dec 31 Unrealised gain or loss 3305.42
Bonds Payable 3305.42
Mark to market

Working -

Date Opening Value Interest Expense Cash Payment Premium Amortisation Carry Value Market Value Mark to Market
01-01-2020 158325.81 0 0 0 158325.81 0 0
31-12-2020 158325.81 6333.04 9000 2666.97 152991.88 151500 -1491.88
31-12-2021 152991.88 6226.35 9000 2773.65 147444.58 150750 3305.42
31-12-2022 147444.58 6114.81 9000 2885.19 141674.2

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