Debt Securities

Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at AJ Corporation describing what the numbers mean and how they relate to the business. Submit journal entries in an Excel file and written segments in an MS Word document.

On January 1, 2017, AJ Corporation purchased bonds with a face value of $300,000 for $308,373.53. The bonds are due June 30, 2020, carry a 13% stated interest rate, and were purchased to yield 12%. Interest is payable semiannually on June 30 and December 31. On March 31, 2018, in contemplation of a major acquisition, the company sold one-half the bonds for $159,500 including accrued interest; the remainder were held until maturity.

  1. Prepare an investment interest income and bond premium amortization schedule using the effective interest method.
  2. Prepare the journal entries to record the purchase of the bonds.
  3. Prepare the journal entries to record each interest payment.
  4. Prepare the journal entries to record the partial sale of the investment on March 31, 2018, and the retirement of the bond issue on June 30, 2020.

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