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On January 1, 2017, Buffalo Company purchased  12% bonds, having a maturity value of $ 304,000, for...

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Accounting

On January 1, 2017, Buffalo Company purchased  12%bonds, having a maturity value of $ 304,000, for $ 327,047.70. Thebonds provide the bondholders with a 10% yield. They are datedJanuary 1, 2017, and mature January 1, 2022, with interest receivedon January 1 of each year. Buffalo Company uses theeffective-interest method to allocate unamortized discount orpremium. The bonds are classified as available-for-sale category.The fair value of the bonds at December 31 of each year-end is asfollows.

2017$ 324,8002020$ 313,800
2018$ 312,7002021$ 304,000
2019$ 311,800
(a)Prepare the journal entry at the date of the bondpurchase.
(b)Prepare the journal entries to record the interest revenue andrecognition of fair value for 2017.
(c)Prepare the journal entry to record the recognition of fairvalue for 2018.


(Round answers to 2 decimal places, e.g. 2,525.25.Credit account titles are automatically indented when amount isentered. Do not indent manually. If no entry is required, select"No Entry" for the account titles and enter 0 for theamounts.)

Answer & Explanation Solved by verified expert
4.5 Ratings (943 Votes)
The available for sale investments are investments which the company does not intends to hold till maturity and is going to sell the investment When bonds are issued above the par value than the bond is issued at premium and if they are issued below par value than the bond is issued at discount a Journal entry for purchase of bonds Date Particulars Debit Credit 1Jan17 Debt Investments available for sale 32704770 Cash 32704770 To record the purchase of bonds Explanation The company has purchased the bonds and are therefore investment of the company which will be shown as available for sale The investments are assets of the company and    See Answer
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