On January 1, 2026, Baker Company purchased, as an investment, 5% bonds, having a maturity value of $150,000, for $138,400. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2026, and mature January 1, 2036, with interest receivable June 30 and December 31 of each year. The securities are classified as available-for-sale. January 1, 2026 June 30, 2026 December 31, 2026 June 30, 2027 December 31, 2027 June 30, 2028 December 31, 2028 Schedule of Interest Revenue and Bond Amortization Amortization Cash Received (2.5%) Interest Revenue (3.5%) 3,750 3,750 3,750 3,750 3,750 3,750 4,844 4,882 4,922 4,963 5,005 5,049 The fair value of the bonds at December 31 of each year-end is as follows. 2026 145,000 2027 148,000 2028 152,000 1,094 1,132 1,172 1,213 1,255 1,299 Carrying Value 138, 139, 140, 141, 143, 144, 145, a) Prepare the journal entry at the date of the investment purchase. b) Prepare the journal entries to record the interest received on December 31, 2026 and recognition o value at December 31, 2026. c) Prepare the journal entry to record the recognition of fair value at December 31, 2027. d) Prepare the journal entry to record the recognition of fair value at December 31, 2028.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On January 1, 2026, Baker Company purchased, as an investment, 5% bonds, having a maturity value of
$150,000, for $138,400. The bonds provide the bondholders with a 7% yield. They are dated January 1,
2026, and mature January 1, 2036, with interest receivable June 30 and December 31 of each year. The
securities are classified as available-for-sale.
January 1, 2026
June 30, 2026
December 31, 2026
June 30, 2027
December 31, 2027
June 30, 2028
December 31, 2028
Schedule of Interest Revenue and Bond Amortization
Amortization
Cash
Received (2.5%)
Interest
Revenue (3.5%)
3,750
3,750
3,750
3,750
3,750
3,750
4,844
4,882
4,922
4,963
5,005
5,049
The fair value of the bonds at December 31 of each year-end is as follows.
2026
145,000
2027
148,000
2028
152,000
1,094
1,132
1,172
1,213
1,255
1,299
Carrying
Value
138,400
139,494
140,626
141,798
143,011
144,266
145,565
a) Prepare the journal entry at the date of the investment purchase.
b) Prepare the journal entries to record the interest received on December 31, 2026 and recognition of fair
value at December 31, 2026.
c) Prepare the journal entry to record the recognition of fair value at December 31, 2027.
d) Prepare the journal entry to record the recognition of fair value at December 31, 2028.
Transcribed Image Text:On January 1, 2026, Baker Company purchased, as an investment, 5% bonds, having a maturity value of $150,000, for $138,400. The bonds provide the bondholders with a 7% yield. They are dated January 1, 2026, and mature January 1, 2036, with interest receivable June 30 and December 31 of each year. The securities are classified as available-for-sale. January 1, 2026 June 30, 2026 December 31, 2026 June 30, 2027 December 31, 2027 June 30, 2028 December 31, 2028 Schedule of Interest Revenue and Bond Amortization Amortization Cash Received (2.5%) Interest Revenue (3.5%) 3,750 3,750 3,750 3,750 3,750 3,750 4,844 4,882 4,922 4,963 5,005 5,049 The fair value of the bonds at December 31 of each year-end is as follows. 2026 145,000 2027 148,000 2028 152,000 1,094 1,132 1,172 1,213 1,255 1,299 Carrying Value 138,400 139,494 140,626 141,798 143,011 144,266 145,565 a) Prepare the journal entry at the date of the investment purchase. b) Prepare the journal entries to record the interest received on December 31, 2026 and recognition of fair value at December 31, 2026. c) Prepare the journal entry to record the recognition of fair value at December 31, 2027. d) Prepare the journal entry to record the recognition of fair value at December 31, 2028.
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