Accounting

(Debt Securities)

P17-1 Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2012, for $108,660.

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Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of Bonds
12/31/12 $108,660
12/31/13 $7,000 $5,433 $1,567  107,093
12/31/14  7,000  5,354  1,646  105,447
12/31/15  7,000  5,272  1,728  103,719
12/31/16  7,000  5,186  1,814  101,905
12/31/17  7,000  5,095  1,905  100,000

The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.

12/31/13 12/31/14 12/31/15 12/31/16 12/31/17
Amortized cost $107,093 $105,447 $103,719 $101,905 $100,000
Fair value $106,500 $107,500 $105,650 $103,000 $100,000

Instructions

(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2012, assuming the bonds are classified as held-to-maturity securities.

(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2013.

(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2015.

(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available-for-sale.

(e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2013.

(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2015.

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