Question

Recording Entries for AFS Debt Securities— Effective Interest Method

On January 1, 2020, Jules Company purchased for cash, $95,000 bonds (nineteen $5,000 bonds) of Android Corporation at a market rate of 6%. The bonds pay 6.5% interest, payable on a semiannual basis each June 30 and December 31, and mature on December 31, 2024. The bonds are classified as available-for-sale securities. The annual reporting period of Jules Company ends December 31. Assume the effective interest method of amortization of any discounts or premiums.

• Amortization Schedule
• Journal Entries for 2020
• Financial Statement Presentation

a. Prepare a bond amortization schedule for the year 2020, using the effective interest method.

Note: Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

Date	Stated Interest	Market Interest	Premium Amortization	Bond Amortized Cost
Jan. 1, 2020				Answer
June 30, 2020	Answer	Answer	Answer	Answer
Dec. 31, 2020	Answer	Answer	Answer	Answer

Answer 1

Semi annual cash interest = 95000*6.50%*6/12 =	3087.5
n = 10
I = 3%
Cashflows		Amount	PVF	Present value
Semi annual cash interest	3087.5	8.5302	26336.99
Maturity value		95000	0.744094	70688.93
Price of bonds				97025.92
Amort Chart
Date	Stated	Market	premium	Bonds
	Interest	Interest	amortized	amortized cost
01.01.20				97026
30.06.20	3087.5	2910.78	176.72	96849.28
31.12.20	3087.5	2905.48	182.02	96667.26