Bray Co. acquired $30,000 of Honey Sales Co.’s 7% bonds, interest payable semiannually, bonds...

Question

Bray Co. acquired $30,000 of Honey Sales Co.'s 7% bonds, interest payable semiannually, bonds maturing in five years. The bonds were acquired at $32,626, a price to return approximately 5%.
1. Prepare tables to show the periodic adjustments to the investment account and the annual bond earnings, assuming adjustment by each of the following methods: (a) the straight line method and (b) the effective interest method.
2. Assuming the use of the effective interest method prepare journal entries for each company for the first year. ]
Solution:
1.
a.
Amortization of Premium—Straight-Line Method:
A
B
C
D
E
Interest
Bond
Received
Premium
Interest
Unamortized
Ca
ying
Interest
(3½%...

David · Accepted Answer

Bray Co. acquired $30,000 of Honey Sales Co.'s 7% bonds, interest payable semiannually, bonds maturing in five years. The bonds were acquired at $32,626, a price to return approximately 5%.
1. Prepare tables to show the periodic adjustments to the investment account and the annual bond earnings, assuming adjustment by each of the following methods: (a) the straight line method and (b) the effective interest method.
2. Assuming the use of the effective interest method prepare journal entries for each company for the first year. ]
Solution:
1.
a.
Amortization of Premium—Straight-Line Method:

Bray Co. acquired $30,000 of Honey Sales Co.’s 7% bonds, interest payable semiannually, bonds maturing in five years. The bonds were acquired at $32,626, a price to return approximately 5%....

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