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R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a discount. They paid...

R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a discount. They paid $92,278. The bonds mature Jan 1, 2021 and yield a 10% rate. The intent of management is to hold the bonds until maturity. Assuming that interest is payable July 1 and Jan 1 create an effective interest amortization table.

What is the carrying value of the investment on 1/1/18 after the adjusting entry had been made?

What is the amount of interest recognized in the period ended 1/1/17?

(Round to the nearest whole number, input everything as positive, disregard any dollar signs or commas when inputting your answer.)

Solutions

Expert Solution

Answer

  • All working forms part of the answer
  • Amortisation Table

Period

Cash payment

Interest expense

Discount on Bonds payable Amortised

Unamortised Discount on Bonds Payable

Carrying Value of Bond

1 jan 16

$                                                7,722

$                            92,278

1 jul 16

$                           4,000

$                     4,614

$                           614

$                                                7,108

$                            92,892

1 Jan 17

$                           4,000

$                     4,645

$                           645

$                                                6,464

$                            93,536

1 Jun 17

$                           4,000

$                     4,677

$                           677

$                                                5,787

$                            94,213

1 Jan 18

$                           4,000

$                     4,711

$                           711

$                                                5,076

$                            94,924

1 Jul 18

$                           4,000

$                     4,746

$                           746

$                                                4,330

$                            95,670

1 Jan 19

$                           4,000

$                     4,784

$                           784

$                                                3,546

$                            96,454

1 Jul 19

$                           4,000

$                     4,823

$                           823

$                                                2,724

$                            97,276

1 Jan 2020

$                           4,000

$                     4,864

$                           864

$                                                1,860

$                            98,140

1 Jul 20

$                           4,000

$                     4,907

$                           907

$                                                    953

$                            99,047

1 Jan 2021

$                           4,000

$                     4,952

$                           952

$                                                         0

$                          100,000

  • Answers

--Carrying Value on 1/1/2018 = $ 94,924

--Amount of interest recognised period ending 1/1/17 = 4614 + 4645 = $ 9,259

ekkarill92 answered 2 years ago
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