On January 1 of the current year, Baker Corp. purchased $50,000 of Chocolate Inc. bonds....
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Accounting
On January 1 of the current year, Baker Corp. purchased $50,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature in ten years on December 31. The investment is classified as a held-to-maturity investment because Baker has the intent and the ability to hold the bonds for 10 years. The effective rate on the bonds is 4.5%.
Amortization Schedule
Journal Entries and Balance Sheet Presentation
a. Were the bonds purchased at a discount or premium? AnswerDiscountPremium b. Prepare a bond amortization schedule for the current year (Year 1) and the following year (Year 2) using the effective interest method. Note: Round each amount entered into the schedule to the nearest whole dollar.
Date
Stated
Market
Premium
Bond
Interest
Interest
Amortization
Amortized Cost
Jan. 1, Year 1
Dec. 31, Year 1
Dec. 31, Year 2
Answer & Explanation
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