On January 1, 2017, Indigo Company purchased 12% bonds, having amaturity value of $320,000, for $344,260.74. The bonds provide thebondholders with a 10% yield. They are dated January 1, 2017, andmature January 1, 2022, with interest received on January 1 of eachyear. Indigo Company uses the effective-interest method to allocateunamortized discount or premium. The bonds are classified asavailable-for-sale category. The fair value of the bonds atDecember 31 of each year-end is as follows.
| 2017 | | $342,000 | | 2020 | | $330,700 |
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| 2018 | | $329,700 | | 2021 | | $320,000 |
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| 2019 | | $328,700 | | | | |
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| (a) | | Prepare the journal entry atthe date of the bond purchase. |
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| (b) | | Prepare the journal entriesto record the interest revenue and recognition of fair value for2017. |
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| (c) | | Prepare the journal entry torecord the recognition of fair value for 2018. |
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(Round answers to 2 decimal places, e.g. 2,525.25.Credit account titles are automatically indented when amount isentered. 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 |
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(a) | choose a transaction date Jan. 1, 2017Dec. 31, 2017Dec. 31, 2018 | enter an account title to recordtransaction A | enter a debit amount | enter a credit amount |
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| | enter an account title to recordtransaction A | enter a debit amount | enter a credit amount |
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(b) | choose a transaction date Jan. 1, 2017Dec. 31, 2017Dec. 31, 2018 | enter an account title to recordinterest received | enter a debit amount | enter a credit amount |
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| | enter an account title to recordinterest received | enter a debit amount | enter a credit amount |
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| | enter an account title to recordinterest received | enter a debit amount | enter a credit amount |
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| | (To record interest received) | | |
| | enter an account title to record fairvalue adjustment | enter a debit amount | enter a credit amount |
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| | enter an account title to record fairvalue adjustment | enter a debit amount | enter a credit amount |
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| | (To record fair value adjustment) | | |
(c) | choose a transaction date Jan. 1, 2017Dec. 31, 2017Dec. 31, 2018 | enter an account title to recordtransaction C | enter a debit amount | enter a credit amount |
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| | enter an account title to recordtransaction C | enter a debit amount | enter a credit amount |
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