On January 1, 2013, Hi and Lois Company purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10.00% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.
2013
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$320,500
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2016
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$310,000
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2014
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$309,000
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2017
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$300,000
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2015
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$308,000
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(a)
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Prepare the journal entry at the date of the bond purchase.
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(b)
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Prepare the journal entries to record the interest received and recognition of fair value for 2013.
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(c)
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Prepare the journal entry to record the recognition of fair value for 2014.
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