On January 1, 2017, Buffalo Company purchased $290,000, 6% bonds of Aguirre Co. for $266,477. The...

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Accounting

On January 1, 2017, Buffalo Company purchased $290,000, 6% bondsof Aguirre Co. for $266,477. The bonds were purchased to yield 8%interest. Interest is payable semiannually on July 1 and January 1.The bonds mature on January 1, 2022. Buffalo Company uses theeffective-interest method to amortize discount or premium. OnJanuary 1, 2019, Buffalo Company sold the bonds for $267,985 afterreceiving interest to meet its liquidity needs.
(c) Prepare the journal entries to record the semiannual intereston (1) July 1, 2017, and (2) December 31, 2017.
(d) If the fair value of Aguirre bonds is $269,985 on December 31,2018, prepare the necessary adjusting entry. (Assume the fair valueadjustment balance on January 1, 2017, is a debit of $3,303.)
(e) Prepare the journal entry to record the sale of the bonds onJanuary 1, 2019.

(Round answers to 0 decimal places, e.g. 2,500. Creditaccount titles are automatically indented when amount is entered.Do not indent manually. If no entry is required, select "No Entry"for the account titles and enter 0 for theamounts.)
No.
Date
Account Titles and Explanation
Debit
Credit
(c)
(1)
July 1, 2017
(2)
Dec. 31, 2017
(d)
Dec. 31, 2018
(e)
Jan. 1, 2019

Answer & Explanation Solved by verified expert

4.4 Ratings (587 Votes)

a)
Jan-01	Debt investments	266477
	Cash		266477

b)
Date	Cash received(2900006%6/12)	Interest revenue	Bond Discount Amortization(8%)	Carrying Amount of Bonds
01-01-17				266477
07-01-17	8700	10659	1959	268436
01-01-18	8700	10737	2037	270474
07-01-18	8700	10819	2119	272592
01-01-19	8700	10904	2204	274796
07-01-19	8700	10992	2292	277088
01-01-20	8700	11084	2384	279472
07-01-20	8700	11179	2479	281950
01-01-21	8700	11278	2578	284528
07-01-21	8700	11381	2681	287210
01-01-22	8700	11490	2790	290000
total	87000	110523	23523

c)
01-01-17	Cash	8700
	debt investments	1959
	Interest revenue		10659

31-12-17	Interest receivable	8700
	debt investments	2037
	Interest revenue		10737

d)
31-12-18	Unrealised Holding Gain or Loss - Equity	8114
	Fair value adjustment		8114


	Securities	AFS	Fair value	Unrealised Gain/(loss)
	Agguire	274796	269985	-4811
	Previous balance			3303
	Fair value adjustment			-8114	cr

e)

01-01-19	Cash	267985
	Loss on sale of investments	6811
	Debt investments		274796

	Selling price of bonds	267985
	Less:amortized cost	-274796
	Realsied loss on sale of investments	-6811

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Transcribed Image Text

On January 1, 2017, Buffalo Company purchased $290,000, 6% bondsof Aguirre Co. for $266,477. The bonds were purchased to yield 8%interest. Interest is payable semiannually on July 1 and January 1.The bonds mature on January 1, 2022. Buffalo Company uses theeffective-interest method to amortize discount or premium. OnJanuary 1, 2019, Buffalo Company sold the bonds for $267,985 afterreceiving interest to meet its liquidity needs.(c)Prepare the journal entries to record the semiannual intereston (1) July 1, 2017, and (2) December 31, 2017.(d)If the fair value of Aguirre bonds is $269,985 on December 31,2018, prepare the necessary adjusting entry. (Assume the fair valueadjustment balance on January 1, 2017, is a debit of $3,303.)(e)Prepare the journal entry to record the sale of the bonds onJanuary 1, 2019.(Round answers to 0 decimal places, e.g. 2,500. Creditaccount titles are automatically indented when amount is entered.Do not indent manually. If no entry is required, select "No Entry"for the account titles and enter 0 for theamounts.)No.DateAccount Titles and ExplanationDebitCredit(c)(1)July 1, 2017(2)Dec. 31, 2017(d)Dec. 31, 2018(e)Jan. 1, 2019

(c)		Prepare the journal entries to record the semiannual intereston (1) July 1, 2017, and (2) December 31, 2017.
(d)		If the fair value of Aguirre bonds is $269,985 on December 31,2018, prepare the necessary adjusting entry. (Assume the fair valueadjustment balance on January 1, 2017, is a debit of $3,303.)
(e)		Prepare the journal entry to record the sale of the bonds onJanuary 1, 2019.

No.		Date	Account Titles and Explanation	Debit	Credit
(c)	(1)	July 1, 2017


	(2)	Dec. 31, 2017


(d)		Dec. 31, 2018

(e)		Jan. 1, 2019