Question

Rockfish Company purchased a 5-year, $ 200,000 bond with a 5% interest rate and a 6% yield on December 31, 2018. The coupon is received annually on December 31 starting with December 31, 2019. The fair value of the bond is presented below:

12/31/19 $ 194,500

12/31/20 $ 194,200

12/31/21 $ 195,650

Required:

(a) Prepare the journal entry for the purchase of these bonds on 12/31/2018. Assume that the bonds are classified as held-to-maturity. What would the entry be if they were classified as available-for-sale?

(b) What would the entry(ies) be for the held-to- maturity bond in the year 2021? You may want to prepare an amortization schedule for this.

(c) If it was categorized as an available-for-sale bond, what would the entry(ies) be in 2021?

(d) How would the entries change if these were trading securities?

Answer 1

Solution-

Requirement	date	particulars	debit $	credit $
a)	12/31/2018	Held to maturity securities cash	200,000	200,000
b)	12/31/2021	cash interest revenue held for maturity securites	10,000 2,000	12000
C)	12/31/2020	available for sale of securities cash	200,000	200,000
	12/31/2021	cash available for sale interest revenue	10,000 2,000	12,000
	12/31/12	unrealized holding gain or loss securities fair value	6000	6000

D) The entries will remain same just the trading word will come.