The journal entries to record the transactions for Sharp Company are as follows:
a) January 1, 2020:
Debit Bonds Receivable $50,000
Debit Bonds Premium $2,165
Credit Cash $52,165
- To record the purchase of the debt investment.
b) December 31, 2020:
Debit Cash $3,000
Credit Interest Revenue $2,608
Credit Bonds Premium Amortization $392
- To record the receipt of interest.
c) December 31, 2020:
Debit Fair Value Loss $1,000
Credit Bonds Receivable $1,000
- To adjust the investment to fair value.
<h3>What is a bond's premium?</h3>
The bonds premium, in this case, refers to the excess cash that Sharp Company paid for the purchase of the bonds when the effective market rate is 5% with a coupon rate of 6%.
The implication is that Sharp Company paid more for the bonds than the market value.
<h3>Data and Calculations:</h3>
Purchase of Sox Bonds = $50,000
PV = $52,165
Premium on bonds = $2,165
Interest rate = 6%
Market rate = 5%
Maturity period = 5 years
Interest payment = annually on December 31
<h3>Transaction Analysis:</h3>
a) January 1, 2020: Bonds Receivable $50,000 Bonds Premium $2,165 Cash $52,165
b) December 31, 2020: Cash $3,000 Interest Revenue $2,608 Bonds Premium Amortization $392
c) December 31, 2020: Fair Value Adjustment $1,000 Bonds Receivable $1,000
Learn more about the amortization of bonds premium at brainly.com/question/25652725
