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Debt Securities and Amortization Schedules

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(Debt Securities) Presented below is an amortization schedule related to Kathy Baker Company's 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2004, for $108,660.
Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of Bonds
12/31/04 $108,660
12/31/05 $7,000 $5,433 $1,567 107,093
12/31/06 7,000 5,354 1,646 105,447
12/31/07 7,000 5,272 1,728 103,719
12/31/08 7,000 5,186 1,814 101,905
12/31/09 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.
12/31/05 12/31/06 12/31/07 12/31/08 12/31/09
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
1. Prepare the journal entry to record the purchase of these bonds on December 31, 2004, assuming the bonds are classified as held-to-maturity securities.
2. Prepare the journal entry(ies) related to the held-to-maturity bonds for 2005.
3. Prepare the journal entry(ies) related to the held-to-maturity bonds for 2007.

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Solution Summary

The solution examines debt securities and amortization schedules. A journal entry is created.

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ANSWERS

NOTE: I assumed that a,b,c is the same as 1,2,3

Instruction 1
DR: Marketable Securities - ...

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