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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Investment Premium Amortization Schedule On January 1, 2019, Lynch Company acquired 13% bonds with a face value of $50,000. The bonds pay interest on June 30 and December 31 and mature on December 31, 2021. Lynch paid $51,229.35, a price that yields a 12% effective annual interest rate.

Required:

  1. 1. Record the purchase of the bonds.
  2. 2. Prepare an investment interest income and premium amortization schedule using the effective interest method.
  3. 3. Record the receipts of interest on June 30, 2019, and December 31, 2021.

1.

To determine

Prepare the journal entry to record the purchase of bonds.

Explanation

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Prepare the journal entry to record the purchase of bonds.

DateAccount Title and ExplanationDebit ($)Credit ($)
January 1, 2019Investment in Held-to-Maturity Debt Securities51,229...

2.

To determine

Prepare an investment interest income and premium amortization schedule using the effective interest method.

3.

To determine

Prepare the journal entry to record the interest income on June 30, 2019 and December 31, 2021.

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