On January 1, 2017, Roosevelt Company purchased 12% bonds, having a maturity value of \(500,000, for \)537,907.40.

The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest

received January 1 of each year. Roosevelt’s business model is to hold these bonds to collect contractual cash flows.

Instructions

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare a bond amortization schedule.

(c) Prepare the journal entry to record the interest revenue and the amortization for 2017.

(d) Prepare the journal entry to record the interest revenue and the amortization for 2018

Date

Particulars

Debit

Credit

Debt Investment

$537,907.40

Cash

$537,907.40

(Being entry for the purchase of debt investment)

Date

Cash Revenue

Interest Received

Premium of bond amortisation

Carrying amount

1/1/2017

$537,907.40

1/1/2018

$60,000

$53,790.74

$6,209.26

$531,698.14

1/1/2019

$60,000

$53,169.81

$6,830.19

$524,867.95

1/1/2020

$60,000

$52,486.79

$7,513.21

$$517,354.74

1/1/2021

$60,000

$51,735.47

$8,264.53

$509,090.21

1/1/2022

$60,000

$50,909.02

$9,090.98

$500,000

Total

$300,000

$262,091.76

$37,907.40

Date

Particulars

Debit

Credit

Cash

$60,000

Debt Investment

$6,209.26

Interest Revenue

$53,790.74

(Being entry for the interest revenue and premium on bond amortisation)

Date

Particulars

Debit

Credit

Cash

$60,000

Debt Investment

$6,830.19

Interest Revenue

$53,169.81

(Being entry for the interest revenue and premium on bond amortisation)