Recording Entries for HTM Debt Securities— Effective Interest MethodOn January 1, 2020, Baker Corp. purchased $16,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%.Amortization ScheduleJournal Entries and Balance Sheet Presentationa. Were the bonds purchased at a discount or premium?AnswerDiscountPremiumb. Prepare a bond amortization schedule for 2020 and 2021 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.DateStatedMarketPremiumBond InterestInterestAmortizationAmortized CostJan. 1, 2020 AnswerDec. 31, 2020AnswerAnswerAnswerAnswerDec. 31, 2021AnswerAnswerAnswerAnswer c. Prepare the journal entry for the purchase of the investment on January 1, 2020.d. Prepare the journal entries to record interest received on December 31, 2020, and December 31, 2021.e. Indicate the carrying value of the Chocolate bonds on Baker’s December 31, 2021, balance sheet assuming that the fair value of the bonds on December 31, 2021, was $16,640. Note: List multiple debits or credits (when applicable) in alphabetical order.Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). DateAccount NameDr.Cr.c.Jan. 1, 2020 d.Dec. 31, 2020 Dec. 31, 2021 e. Carrying value of investment, Dec. 31, 2021 $?

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Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 6E: Investment Premium Amortization Schedule On January 1, 2019, Lynch Company acquired 13% bonds with a...

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Recording Entries for HTM Debt Securities— Effective Interest Method

On January 1, 2020, Baker Corp. purchased $16,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%.

Amortization Schedule
Journal Entries and Balance Sheet Presentation

a. Were the bonds purchased at a discount or premium?

AnswerDiscountPremium

b. Prepare a bond amortization schedule for 2020 and 2021 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	Market	Premium	Bond
	Interest	Interest	Amortization	Amortized Cost
Jan. 1, 2020				Answer
Dec. 31, 2020	Answer	Answer	Answer	Answer
Dec. 31, 2021	Answer	Answer	Answer	Answer

c. Prepare the journal entry for the purchase of the investment on January 1, 2020.

d. Prepare the journal entries to record interest received on December 31, 2020, and December 31, 2021.

e. Indicate the carrying value of the Chocolate bonds on Baker’s December 31, 2021, balance sheet assuming that the fair value of the bonds on December 31, 2021, was $16,640.

Note: List multiple debits or credits (when applicable) in alphabetical order.
Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

	Date	Account Name	Dr.	Cr.
c.	Jan. 1, 2020

d.	Dec. 31, 2020


	Dec. 31, 2021

e. Carrying value of investment, Dec. 31, 2021

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