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 a 6% yield, purchased on December 31, 2010, for$95,788. Carrying Value of Interest Date Cash Revenue Investment Investment 95788 747 9653s 792 97327 840 98167 99057 943 100000 1/1/2011 1231/2011 5000 5747.27 12/31/2012 5000 5792.10 12/31/2013 5000 5839.63 12/31/2014 5000 5890.01 890 12/31/2015 5000 5943.41 The following schedule presents a comparison of the amortized cost and fair value of the bonds at year- end Amortized cost $96,535 $97,327 Fair value$97,250 $97,100 $97,375 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 $98,167 $99,057 $100,000 $99,500 $100,000 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. (d) Prepare the journal entrylies) 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 2011. (0 Prepare the journal entrylies) related to the available-for-sale bonds for 2013

Explanation / Answer

1) Date Debit Credit 31-Dec-10 Investment in Bond A/C $95,788 To Bank $95,788 96535 2) 31-Dec-11 Bank A/C $5,000 Investment in Bond A/C $747 To Interest on Bonds $5,747 3) 31-Dec-13 Bank A/C $5,000 Investment in Bond A/C $840 To Interest on Bonds $5,840 4) 31-Dec-10 Investment in Bond A/C $95,788 To Bank $95,788 5) 31-Dec-11 Bank A/C $5,000 Investment in Bond A/C $1,462 To Interest on Bonds $5,000 To investment Revaluation reserve $1,462 6) 31-Dec-13 Bank A/C $5,000 Investment in Bond A/C $275 To Interest on Bonds $5,000 To investment Revaluation reserve $275

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