Problem 1 (20 Points) Presented below is an amortization schedule related to Met

Question

Problem 1 (20 Points) Presented below is an amortization schedule related to Mets Company's 5-year,$100,000 bond with a 5% interest rate and 6% yield, purchased on December 31, 2010, for S9.788. Carrying Value of nnerest Revenue levestment 1/1/2011 231/201 5000 5747 27 12/31/2012 5000 5792.10 1231/2013 5000 5839 63 1231/2014 12/31/2015 000 5943.41 747 96535 792 97327 840 98167 890 99057 5000 58900 943 100900 The following schedule presents a comparison of the amortized cost and tair value of the bonds at year- end 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 $98,167 99,057 $100,000 Fair value $97,250 $97,100 7,375 $99,500 $100,000 Amortized cost $96,535 $97,327 Instructions (a) Prepare the journal entry to record the purchase of these bonds on December 31, 2010, assuming the bonds are classified as held-to-maturity securities (b) Prepare the journal entrylies) related to the held-to-maturity bonds for 2011 (c) Prepare the journal entrylies) related to the held-to-maturity bonds for 2013 Id) Prepare the journal entrylies) to record the purch classified as available-for-sale. ase of these bonds, assuming they are e) Prepare the journal entrylies) related to the available-for-sale bonds for 2011 (f) Prepare the journal entrylies) related to the available-for-sale bonds for 2013

Explanation / Answer

Journal Entry S. No. Date Particulars Dr. Amt. Cr. Amt. a. 31-Dec-10 Investment in Bonds - HTM    95,788.00    Cash    95,788.00 (To record the purchase of investments) b. 31-Dec-11 Cash      5,000.00 Investment in Bonds - HTM          747.00    Interest Revenue      5,747.00 (To record the interest received) c. 31-Dec-13 Cash      5,000.00 Investment in Bonds - HTM          840.00    Interest Revenue      5,840.00 (To record the interest received) d. 31-Dec-10 Investment in Bonds - AFS    95,788.00    Cash    95,788.00 (To record the purchase of investments) e-1. 31-Dec-11 Cash      5,000.00 Investment in Bonds - AFS          747.00    Interest Revenue      5,747.00 (To record the interest received) e-2. 31-Dec-11 Unrealized Holding Gain or Loss - Equity          715.00    Fair Value Adjustment          715.00 (To record the fair value adjustment) Unrealized Gain = $97,250 - $96,535 = $715 f-1 31-Dec-13 Cash      5,000.00 Investment in Bonds - HTM          840.00    Interest Revenue      5,840.00 (To record the interest received) f-2 31-Dec-13 Fair Value Adjustment          565.00    Unrealized Holding Gain or Loss - Equity          565.00 (To record the fair value adjustment)

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