Question

Exercise 17-5 On January 1, 2017, Crane Company acquires $160,000 of Spiderman Products, Inc, 10 % bonds at a price of $152,314. Interest is received on January 1 of each year, and the bonds mature on January 1, 2020. The investment will provide Crane Company a 12 % yield . The bonds are dassified as held-to-maturity Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method. (Round answers to 0 decimal places, eg. 2,500.) Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method Bond Purchased to Yield Bond Discount Amortization Carrying Amount Cash Received Interest Revenue of Bonds Date 1/1/17 $ 1/1/18 1/1/19 1/1/20 Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method. (Round answers to 0 decimal places, e.g. 2,500.) Schedule of Interest Revenue and Bond Discount Amortization lacthe-Interest Method

Answer 1

Solution a:

Schedule of interest revenue and bond discount amortization Straight line method
Date	Cash received	Interest revenue	Discount Amortization	Carrying amount of bonds
1-Jan-17				$152,314
1-Jan-18	$16,000	$18,562	$2,562	$154,876
1-Jan-19	$16,000	$18,562	$2,562	$157,438
1-Jan-20	$16,000	$18,562	$2,562	$160,000

Solution b:

Schedule of interest revenue and bond discount amortization Effective interest method
Date	Cash received	Interest revenue	Discount Amortization	Carrying amount of bonds
1-Jan-17				$152,314
1-Jan-18	$16,000	$18,278	$2,278	$154,592
1-Jan-19	$16,000	$18,551	$2,551	$157,143
1-Jan-20	$16,000	$18,857	$2,857	$160,000

Solution c:

Journal Entries - Crane Company
Date	Particulars	Debit	Credit
31-Dec-18	Interest receivables Dr	$16,000.00
	Discount on bond investment Dr	$2,562.00
	To Interest revenue		$18,562.00
	(To record interest revenue and discount amortization)

Solution d:

Journal Entries - Crane Company
Date	Particulars	Debit	Credit
31-Dec-18	Interest receivables Dr	$16,000.00
	Discount on bond investment Dr	$2,551.00
	To Interest revenue		$18,551.00
	(To record interest revenue and discount amortization)