Question
In: Accounting
Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2018, paying $1,410,375....
Patton Company purchased $1,500,000 of 10% bonds of Scott Company on January 1, 2018, paying $1,410,375. The bonds mature January 1, 2028; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity.
*USE T ACCOUNTS
On July 1, 2018, Patton Company should increase its Debt Investments account for the Scott Company bonds by?
For the year ended December 31, 2018, Patton Company should report interest revenue from the Scott Company bonds of?
Solutions
Expert Solution
Solution 1:
On July 1 2018, Patton Company should increase its Debt Investments account for the Scott Company bonds by = Amount of discount amortized
= Interest revenue - Interest received = ($1,410,375*11%*6/12) - ($1,500,000*10%*6/12) = $77,571 - $75,000 = $2,571
Solution 2:
Interest revenue on 31 december 2018 = ($1,410,375 + $2,571)*11%*6/12 = $77,712
For the year ended December 31, 2018, Patton Company should report interest revenue from the Scott Company bonds of = $77,571 + $77,712 = $155,283
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