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Question - On January 1, 2017, Teal Company purchased 12% bonds, having a maturity value of $325,000, for $349,639.81. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest received on January 1 of each year. Teal 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.
2017 $347,400
2018 $333,800
2019 $332,800
2020 $334,900
2021 $325,000
Required -
(a) Prepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2017.
(c) Prepare the journal entry to record the recognition of fair value for 2018.
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