In: Accounting
On January 1, Year 1, Company C purchased 10 of the $10,000 face value, 10%, 2-year bonds of Company D. The bonds mature on December 31, Year 2, and pay interest annually on December 31. Company C purchased the bonds to yield 12% and classified the bonds as held-to-maturity. The company's policy is to amortize the bonds' premium or discount according to the effective interest method. Information on present value factors is a as follows:
Present value of $1 at 10% for two periods |
0.8264 |
Present value of $1 at 12% for two periods |
0.7972 |
Present value of an annuity of $1 at 10% for two periods |
1.7355 |
Present value of an annuity of $1 at 12% for two periods |
1.6901 |
Enter the appropriate amounts in the designated cells below. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0). Enter all amounts as positive values.
Item |
Amount |
1. The amount Company C paid for the bonds. |
|
2. The amount of discount on the bonds on January 1, Year 1. |
|
3. The amount of cash interest received by Company C during Year 1. |
|
4. The amount of interest revenue recognized in Year 1 income statement. |
|
5. The amount of the bonds' discount amortized in Year 1. |
|
6. The carrying amount of the bonds presented in the December 31, Year 1, financial statements. |
ANSWER
Enter the appropriate amounts in the designated cells below. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0). Enter all amounts as positive values.
Item |
Amount |
1)The amount Company C paid for the bonds. (1000*1.6901+10000*0.7972) | 9662 |
2)The amount of discount on the bonds on January 1, Year 1. (10000-9662) | 338 |
3)The amount of cash interest received by Company C during Year 1. (10000*10%) | 1000 |
4)The amount of interest revenue recognized in Year 1 income statement. (9662*12%) | 1159 |
5)The amount of the bonds' discount amortized in Year 1. | 159 |
6)The carrying amount of the bonds presented in the December 31, Year 1, financial statements. | 9662+159 = 9821 |
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