Question

1. On January 1, 2017, the Widner Company acquired 12% bonds with a face value of $350,000 and classified them as held-to-maturity. The bonds pay interest on June 30 and December 31, and mature on December 31, 2026. (20 Points) Required: use format as on pages 13-7 and 13-8 a. Assume the bonds were acquired for$312,921 to yield 14%. Prepare an investment discount amortization schedule for the first year of the investment, using the effective interest method. Round all calculations to the nearest dollar. Assume the bonds were acquired for $393,618 to yield 10%. Prepare an investment premium amortization schedule for the first year of the investment using the effective interest method. Round all calculations to the nearest dollar.

Answer 1

Solution:

Requirement a:

Investment Discount Amortization Schedule-Effective Interest Method
Date	Cash Received(a)	Interest Revenue (b)	Discount Amortized(b-a)	Carrying Amount of Bonds
1/1/2017				$                                    312,921
30/6/17	$                     21,000	$                           21,904	$                                         904	$                                    313,825
31/12/17	$                     21,000	$                           21,968	$                                         968	$                                    314,793

Requirement b:

Investment Premium Amortization Schedule-Effective Interest Method
Date	Cash Received(a)	Interest Revenue (b)	Premium Amortized(a-b)	Carrying Amount of Bonds
1/1/2017				$                                    393,618
30/6/17	$                     21,000	$                           19,681	$                                     1,319	$                                    392,299
31/12/17	$                     21,000	$                           19,615	$                                     1,385	$                                    390,914

Notes:

1) Cash Received = Face Value * Bond Rate * 6 M / 12 M

2) Interest Revenue = Carrying Value * Yield Rate * 6 M / 12 M

3) Carrying Amount of Bonds = Acquired Price of bond.