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In: Accounting

On January 1, Year 1, Company C purchased 10 of the $10,000 face value, 10%, 2-year...

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.

Solutions

Expert Solution

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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