Question

On January 1, 2021, Rupar Retailers purchased $130,000 of Anand Company bonds at a discount of $6,000. The Anand bonds pay 7% interest but were purchased when the market interest rate was 8% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of: Multiple Choice O $4,976 O $4,960. O $4,550. O $5,200.

Answer 1

Answer
The Correct option is A: $ 4,976
Explanation
Purchase price of Bonds	$      124,000	130000-6000
Semi-annual cash interest	$          4,550	130000*7%/2
Interest revenue for first period	$          4,960	124000*8%/2
Discount amortized for first period	$             410	4960-4550
Carrying value after first period	$      124,410	124000+410
Interest revenue for second period	$          4,976	124410*8%/2
Option A $4,976 is correct
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