Question

In: Accounting

On January 1, a company purchased 3%, 20-year corporate bonds for $69,057,808 as an investment. The...

On January 1, a company purchased 3%, 20-year corporate bonds for $69,057,808 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually. Prepare a partial amortization table at the effective interest rate on June 30 and December 31. Prepare the journal entries necessary to record revenue at the effective interest rate on June 30 and December 31.

Period-End Cash Interest Received Bond Interest Revenue Discount Amortization Carrying Value
January 1 $69,057,808
June 30
December 31

Solutions

Expert Solution

Prepare a partial amortization table at the effective interest rate on June 30 and December 31

Period End Cash interest received Bond interest revenue Discount amortization Carrying value
January 1 69057808
June 30 1200000 1381156 181156 69238964
Dec 31 1200000 1384779 184779 69423743

Journal entry

Date account and explanation Debit credit
June 30 Cash 1200000
Discount on bonds investment 181156
Bond interest revenue 1381156
(To record interest)
Dec 31 Cash 1200000
Discount on bond investment 184779
Bonds interest revenue 1384779
(To record interest)

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