On January 1, 2019, Rodgers Company purchased $100,000 face value, 9%, 3-year bonds for $97,462.11, a price that yields a 10% effective annual interest rate. The bonds pay interest semiannually on June 30 and December 31.
Required:
|
1. |
Record the purchase of the bonds. |
|
2. |
Prepare an investment interest income and discount amortization schedule using the effective interest method. |
|
3. |
Record the receipts of interest on June 30, 2019, and June 30, 2021. |
Homework Answers
| Amortization Schedule | |||||
| Period | Cash paid | Interest | Investment in debt securties | Calculation | Closing bal. |
| 01/01/2019 | 0 | $0.00 | $97,462.11 | ||
| 06/30/2019 | $4,500 | $4,873.11 | $373.11 | (4873.11-4500) | $97,835.22 |
| 12/31/2019 | $4,500 | $4,891.76 | $391.76 | (4891.76-4500) | $98,226.98 |
| 06/30/2020 | $4,500 | $4,911.35 | $411.35 | (4911.35-4500) | $98,638.33 |
| 12/31/2020 | $4,500 | $4,931.92 | $431.92 | (4931.92-4500) | $99,070.25 |
| 06/30/2021 | $4,500 | $4,953.51 | $453.51 | (4953.51-4500) | $99,523.76 |
| 12/31/2021 | $4,500 | $4,976.24 | $476.24 | (4976.24-4500) | $100,000.00 |
| 1 | Investment in debt securities Dr. | $97,462 | |||
| Cash | $97,462 | ||||
| (purchase of debt securities recorded) | |||||
| 3 | Cash | $4,500 | |||
| Investment in debt securities | $373 | ||||
| Interest income | $4,873 | ||||
| (June 30, 2019 interest) | |||||
| 3 | Cash | $4,500 | |||
| Investment in debt securities | $454 | ||||
| Interest income | $4,954 | ||||
| (June 30, 2021 interest) | |||||
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