50.1K

Verified Solution

Link Copied!

On January 1, 2021, Buffalo Ltd. issued bonds with a maturity value of $5.40 million for $5,175,360, when the market rate of interest was 7%. The bonds have a contractual interest rate of 6% and mature on January 1, 2026. Interest on the bonds is payable semi-annually on July 1 and January 1 of each year. On January 1, 2021, Sunland Company, a public company, purchased Buffalo Ltd. bonds with a maturity value of $1.08 million to earn interest. On December 31, 2021, the bonds were trading at 97. Both companies year-end is December 31.

1. What amount did Sunland Company pay for Buffalo Ltd.s bonds?

2. Prepare the journal entry for Sunland Company (investor) on January 1, 2021.

3. Prepare a bond amortization schedule for Sunland Company for the first four interest periods.

Bond Discount Amortization Table Effective Interest Method-Semi-annual Interest Payments 6% Bonds Issued at market rate of 7%
Date		(A) Interest Received		(B) Interest Revenue		(C) Discount Amortization		(D) Bond Amortized Cost
Jan. 1, 2021								$
July 1, 2021		$		$		$
Jan. 1, 2022
July 1, 2022
Jan. 1, 2023

4. Prepare the journal entries for Sunland Company to record: (1) The receipt of interest on July 1, 2021. (2) The accrual of interest on December 31, 2021. (3) The receipt of interest on January 1, 2022.

5. Show how the bonds and related income statement accounts would be presented in Sunland Companys financial statements for the year ended December 31, 2021 on a partial balance sheet and income statement.

Answer & Explanation Solved by verified expert

See Answer