On January 1, 2012, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price...

On January 1, 2012, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $2... On January 1, 2012, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384. The interest is payable each December 31, and the bonds mature December 31, 2014. The investment will provide Morgan Company a 12% yield. The bonds are classified as held-to-maturity.

(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method

(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective interest ethod

(c) Prepare the journal entry for the interest receipt of Dec 31,2013 and discount amrtization under staright line method

(d) Prepare the journal entry for the interest receipt of Dec 31,2013 and discount amrtization under effective interesmethod

Expert Solution

Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method 9% Bond Purchased to Yield 12%
Date	Cash Received	Interest Revenue	Bond Discount Amortization	Carrying Amount of bonds
01/01/2012				278,384
12/31/2012	(300000*9%) 27000	34,205	7,205	285,589
12/31/2013	27000	34,205	7,205	292,795
12/31/2014	27000	34,205	7,206	300,000

(300000-278384)/3 = 7205

Schedule of Interest Revenue and Bond Discount Amortization Effective-Interest Method 9% Bond Purchased to Yield 12%
Date	Cash Received	Interest Revenue	Bond Discount Amortization	Carrying Amount of bonds
01/01/2012	-			278,384.00
12/31/2012	27000	33406.08**	(33406-27000) 6406.08	284,790.08
12/31/2013	27000	34174.81	7174.81	291,964.89
12/31/2014	27000	35035.11	8035.11	300,000.00

* *$278,384 X .12 = $33,406.08

c
31-Dec-13	Cash	27000
	Debt Investments (Held to maturity)	7205
	Interest Revenue		34205

31-Dec-13	Cash	27000
	Debt Investments (Held to maturity)	7174.81
	Interest Revenue		34174.81

ekkarill92 answered 1 year ago

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