Logan Co. purchased $500,000 of 8% bonds of Harper Co. on January 1, 2015, paying $478,500. The bonds mature on January 1, 2025; interest is payable each July 1 and January 1. The discount of $21,500 provides an effective yield of 9%. Logan Co. uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2015, Logan Co. should increase its Held-to-Maturity Debt Securities account for the Harper Co. bonds by: a. $2,752.50 b. $1,993.50 c. $1,250.00 d. $759.00

On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?

On January 1, 2020, Apple Co. purchased held-for-collection and sales bonds par value $2,000,000, 9% paying $1,920,000. The bonds mature on January 1, 2025, and pay interest on July 1 and January 1. Apple Co. sells these bonds on January 1, 2023, for €2,025,000, after the interest has been received. If the carrying value of the bonds at the selling date was €1,966,500. Apple Co. uses effective interest amortization (100% effective interest rate). The gain on the sale is: A. €80,000. B. €25,000. C. €58,500. D. €33,500.

On January 1, 2017, Pearl Company purchased 12% bonds, having a maturity value of $284,000, for $305,531.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Pearl Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2017 $303,400 $292,200 2018 2019 (a) (b) (c) $291,200 2020 2021 $293,200 $284,000 Prepare the journal entry at the date of the bond purchase. Prepare the journal entries to record the interest revenue and recognition of fair value for 2017. Prepare the journal entry to record the recognition of fair value for 2018.