On January 1, 2025, Vaughn Company purchased 12% bonds having a maturity value of $320,000 for $344,260.74. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received January 1 of each year. Vaughn 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. 2025 $342,000 2028 $330,700 2026 $329,700 2029 $320,000 2027 $328,700 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2025. (c) Prepare the journal entry to record the recognition of fair value for 2026.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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No.
(a)
(b)
(c)
Date
Account Titles and Explanation
(To record interest received)
(To record fair value adjustment)
Debit
==
Credit
Transcribed Image Text:No. (a) (b) (c) Date Account Titles and Explanation (To record interest received) (To record fair value adjustment) Debit == Credit
On January 1, 2025, Vaughn Company purchased 12% bonds having a maturity value of $320,000 for $344,260.74. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received on
January 1 of each year. Vaughn 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.
2025 $342,000 2028 $330,700
2026 $329,700 2029
$320,000
2027 $328,700
(a)
(b)
(c)
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 2025.
Prepare the journal entry to record the recognition of fair value for 2026.
Transcribed Image Text:On January 1, 2025, Vaughn Company purchased 12% bonds having a maturity value of $320,000 for $344,260.74. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2025, and mature January 1, 2030, with interest received on January 1 of each year. Vaughn 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. 2025 $342,000 2028 $330,700 2026 $329,700 2029 $320,000 2027 $328,700 (a) (b) (c) 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 2025. Prepare the journal entry to record the recognition of fair value for 2026.
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