Answered: Were the bonds purchased at a discount…

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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Recording Entries for HTM Debt Securities— Effective Interest Method

On January 1, 2020, Baker Corp. purchased $16,000 of Chocolate Inc. bonds. These bonds pay 5% interest annually on December 31 and mature December 31, 2029. 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%.

a. Were the bonds purchased at a discount or premium?

AnswerDiscountPremium

b. Prepare a bond amortization schedule for 2020 and 2021 using the effective interest method.

Note:Round each amount entered into the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

Date	Stated	Market	Premium	Bond
	Interest	Interest	Amortization	Amortized Cost
Jan. 1, 2020				Answer
Dec. 31, 2020	Answer	Answer	Answer	Answer
Dec. 31, 2021	Answer	Answer	Answer	Answer

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