Question

On January 1, 2020, Flounder Company acquires $130,000 of Spiderman Products, Inc., 9% bonds at a price of $120,632. Interest is received on January 1 of each year, and the bonds mature on January 1, 2023. The investment will provide Flounder Company a 12% yield. The bonds are classified as held-to-maturity.

(a)

Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method. (Round answers to 0 decimal places, e.g. 2,500.)

Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method Bond Purchased to Yield
Date		Cash Received		Interest Revenue		Bond Discount Amortization		Carrying Amount of Bonds
1/1/20		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
1/1/21		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
1/1/22		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount
1/1/23		enter a dollar amount		enter a dollar amount		enter a dollar amount		enter a dollar amount

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Attempts: 0 of 3 used

Using multiple attempts will impact your score.

20% score reduction after attempt 2

(b)

The parts of this question must be completed in order. This part will be available when you complete the part above.

(c) and (d)

The parts of this question must be completed in order. This part will be available when you complete the part above.

Answer 1

Face Value of Bonds = $130,000
Purchase Value of Bonds = $120,632

Discount on Bonds = Face Value of Bonds - Purchase Value of Bonds
Discount on Bonds = $130,000 - $120,632
Discount on Bonds = $9,368

Annual Coupon Rate = 9.00%
Annual Coupon = 9.00% * $130,000
Annual Coupon = $11,700

Time to Maturity = 3 years

Annual Amortization of Discount = Discount on Bonds / Time to Maturity
Annual Amortization of Discount = $9,368 / 3
Annual Amortization of Discount = $3,123

Annual Interest Revenue = Annual Coupon + Annual Amortization of Discount
Annual Interest Revenue = $11,700 + $3,123
Annual Interest Revenue = $14,823