Question

Tudor Company acquired $500,000 of Carr Corporation bonds for $487,706.69 on January 1, 2018. The bonds carry an 11% stated interest rate, pay interest semiannually on January 1 and July 1, were issued to yield 12%, and are due January 1, 2021.

Required:

1.	Prepare an investment interest income and discount amortization schedule using the:
a.	straight-line method
b.	effective interest method
2.	Prepare the July 1, 2020, journal entries to record the interest income under both methods. Prepare an investment interest income and discount amortization schedule using the straight-line method. Additional Instructions TUDOR COMPANY Bond Investment Interest Income and Discount Amortization Schedule Straight-Line Method 1 Date Cash Debit Investment in Debt Securities Debit Interest Income Credit Carrying Value of Debt Securities 2 01/01/18 3 07/01/18 4 01/01/19 5 07/01/19 6 01/01/20 7 07/01/20 8 01/01/21

This is the only one I am having trouble with. Its the preparing the investment income and discount amortization schedule using straight-line method.

Answer 1

1	a. Straight-line method
		$
	Face value	500,000.00
	Issue price	487,706.69
	Total discount	12,293.31
	Semi annual amortization	2,048.89
	Date	Cash Debit	Investment in Debit	Interest Income credit	Carrying value of security
	1/1/2018				487,706.69
	1/7/2018	27,500.00	2,048.89	29,548.89	489,755.58
	1/1/2019	27,500.00	2,048.89	29,548.89	491,804.46
	1/7/2019	27,500.00	2,048.89	29,548.89	493,853.35
	1/1/2020	27,500.00	2,048.89	29,548.89	495,902.23
	1/7/2020	27,500.00	2,048.89	29,548.89	497,951.12
	1/1/2021	27,500.00	2,048.89	29,548.89	500,000.00
	b. Effective interest method
	Date	Beginning book value	Cash receipt	Interest revenue	Difference	Carrying value of security
	{1}	{2}	{3 } 5.5% on face value	{4} = 6% on carrying amount	{5} = {4} - {3}	{6} = {2}-{5}
	1/1/2018					487,706.69
	1/7/2018	487,706.69	27,500.00	29,262.40	1,762.40	489,469.09
	1/1/2019	489,469.09	27,500.00	29,368.15	1,868.15	491,337.24
	1/7/2019	491,337.24	27,500.00	29,480.23	1,980.23	493,317.47
	1/1/2020	493,317.47	27,500.00	29,599.05	2,099.05	495,416.52
	1/7/2020	495,416.52	27,500.00	29,724.99	2,224.99	497,641.51
	1/1/2021	497,641.51	27,500.00	29,858.49	2,358.49	500,000.00

	Journal entries;
Date	Account tittle	Debit $	Credit $
a	Straight-line method
1/7/2020	Cash	27,500.00
	Investment in Securities	2,048.89
	Interest income		29,548.89
	( To record semiannual interest revenue )
b.	Effective interest method
1/7/2020	Cash	27,500.00
	Investment in Securities	2,224.99
	Interest income		29,724.99
	( To record semiannual interest revenue )