Question

On January 1, 2020, Sharp Company purchased $50,000 of Sox Company 5% bonds, at a time when the market rate was 6%. The bonds mature on December 31, 2024, and pay interest semiannually on June 30 and Decem-ber 31. Sharp plans to and has the ability to hold the bonds until maturity. Assume that Sharp uses the effective interest method to amortize any premium or discount on investments in bonds. At June 30, 2020, the bonds are quoted at 98. a. Prepare the entry for the purchase of the debt investment on January 1, 2020. b. Prepare the entry for the receipt of interest on June 30, 2020. c. Record the entry to adjust the investment to fair value on June 30, 2020, if applicable

Answer 1

1-	price of bond	Using Present value function in MS excel	pv(rate,nper,pmt,fv,type) rate= 6/2 =3% nper = 5*2 =10 pmt = 1250 fv =-50000 type =0	PV(3%,10,1250,50000,0)	($47,867.45)
	date	explanation	debit	credit
	1-Jan	Investment in bonds	47867.45
		cash		47867.45
2-	30-Jun	cash	1250
		Investment in bonds	186.0235
		interest revenue		1436.0235
	amortization of bond premium	(47867.45*3%)-(50000*2.5%)	186.0235
3-	No entry required as Investments are classified as held to maturity investment