On January 1, 2018, Rodgers Company purchased $300,000 face value, 10%, 3-year bonds for $292,506.75, a...
On January 1, 2018, Rodgers Company purchased $300,000 face value, 10%, 3-year bonds for $292,506.75, a price that yields a 11% effective annual interest rate. The bonds pay interest semiannually on June 30 and December 31.
| 2. | Prepare an investment interest income and discount amortization schedule using the effective interest method. |
| 3. | Record the receipts of interest on June 30, 2018, and June 30, 2020. |
Homework Answers
Solution 2:
| Date | Cash Interest Received | Bond Interest Revenue | Discount Amortization | Carrying Value |
| 1-Jan-18 | $292,506.75 | |||
| 30-Jun-18 | $15,000.00 | $16,087.87 | $1,087.87 | $293,594.62 |
| 31-Dec-18 | $15,000.00 | $16,147.70 | $1,147.70 | $294,742.33 |
| 30-Jun-19 | $15,000.00 | $16,210.83 | $1,210.83 | $295,953.15 |
| 31-Dec-19 | $15,000.00 | $16,277.42 | $1,277.42 | $297,230.58 |
| 30-Jun-20 | $15,000.00 | $16,347.68 | $1,347.68 | $298,578.26 |
| 31-Dec-20 | $15,000.00 | $16,421.74 | $1,421.74 | $300,000.00 |
Solution 3:
| Journal Entries | ||||
| Event | Date | Particulars | Debit | Credit |
| a | 30-Jun-18 | Cash Dr | $15,000.00 | |
| Discount on bond investment Dr | $1,087.87 | |||
| To Interest revenue | $16,087.87 | |||
| (Being revenue recognition for bond interest and discount amortized) | ||||
| b | 30-Jun-20 | Cash Dr | $15,000.00 | |
| Discount on bond investment Dr | $1,347.68 | |||
| To Interest revenue | $16,347.68 | |||
| (Being revenue recognition for bond interest and discount amortized) | ||||
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