Garcia Company acquired $3,516,000face? value, 9% bonds as a trading debt invest
ID: 2530337 • Letter: G
Question
Garcia Company acquired $3,516,000face? value, 9% bonds as a trading debt investment onJanuary 1 of the current year when the market rate of interest was 11%.Interest is paid annually each December 31. Garcia purchased the? bonds, which mature in 12 ?years, for $3,059,458. Garcia amortizes the discount using the effective interest rate method. The fair value of the bonds at the end of the year is $3,017,000.
Prepare the journal entries required on the date of acquisition and at the end of the first year after acquisition. This includes the entry to record the fair value adjustment.
Explanation / Answer
Date Account Name Debit Credit 1-Jan Investment in 9% Bonds 3,059,458.00 To Cash 3,059,458.00 (Being Bons Purchased, FV 3516000) 31-Dec Cash 316,440.00 To Interest on Bond 316,440.00 (Being Interest on Bond received (3516000*9%)) 31-Dec Un-Realised Loss on Investment 42,458.00 Investment in 9% Bonds 42,458.00 (Being Un-realised loss on Investment Recognised)
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