Reference no: EM133055085

Question - On July 1, 2020, Culver Aggregates Ltd. purchased 5% bonds having a maturity value of $75,000 for $77,747. The bonds provide the bondholders with a 4% yield. The bonds mature four years later, on July 1, 2024, with interest receivable June 30 and December 31 of each year. Culver uses the effective interest method to allocate unamortized discount or premium. The bonds are accounted for using the FV-OCI model with recycling. Culver has a calendar year end. The fair value of the bonds at December 31, 2020 and 2021, was $77,638 and $76,640, respectively. Assume fair value adjustments are recorded at year end only. Immediately after collecting interest on December 31, 2021, the bonds were sold for $76,640.

Required -

1. Prepare the journal entry at the date of the bond purchase.

2. Prepare a bond amortization schedule to December 31, 2021.

3. Prepare the entries and year-end entries from December 31, 2020, through to the collection of interest on December 31, 2021.

4. Following the three-step approach, prepare the journal entries for the sale of the bond on December 31, 2021. Include the reclassification of unrealized gains and losses to net income.