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On January 1, 2020, Sharp Company purchased $50,000 of Sox Company 6% bonds, at a time...

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Accounting

On January 1, 2020, Sharp Company purchased $50,000 of SoxCompany 6% bonds, at a time when the market rate was 5%. The bondsmature on December 31, 2024, and pay interest annually on December31. Sharp plans to and has the ability to hold the bonds untilmaturity. Assume that Sharp uses the effective interest method toamortize any premium or discount on investments in bonds. AtDecember 31, 2020, the bonds are quoted at 98. a. Prepare the entryfor the purchase of the debt investment on January 1, 2020. b.Prepare the entry for the receipt of interest on December 31, 2020.c. Record the entry to adjust the investment to fair value onDecember 31, 2020, if applicable

Answer & Explanation Solved by verified expert
4.0 Ratings (741 Votes)
Purchase price of bonds Interest 50000 x 6 3000 present value of interest 3000 x 432948 1298844 Present value of principal 50000 x 078353 3917650 Total present valuepurchase price 5216494 Present    See Answer
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