Question: (Debt Securities) Presented below is an amortization schedule related to Spangler Company’s 5-year, \(100,000
bond with a 7% interest rate and a 5% yield, purchased on December 31, 2015, for \)108,660.
Cash Interest Bond Premium Carrying Amount
Date Received Revenue Amortization of Bonds
12/31/15 \(108,660
12/31/16 \)7,000 \(5,433 \)1,567 107,093
12/31/17 7,000 5,354 1,646 105,447
12/31/18 7,000 5,272 1,728 103,719
12/31/19 7,000 5,186 1,814 101,905
12/31/20 7,000 5,095 1,905 100,000
The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.
12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
Amortized cost \(107,093 \)105,447 \(103,719 \)101,905 $100,000
Fair value 106,500 107,500 105,650 103,000 100,000
Instructions
(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified
as held-to-maturity securities.
(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2016.
(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2018.
(d) Prepare the journal entry(ies) 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 2016.
(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2018.
