Question

Free Company purchased $1,500,000 of 10% bonds of Carter Company on January 1, 2021, paying $1,410,375. The bonds mature January 1, 2031; interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Free Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2021, Free Company should report interest revenue on their Income Statement from the Carter Company bonds of: Answer:

Answer 1

		AMORTIZATION SCHEDULE
			(10/2)=5% *1.5 million	Market rate(11/2)=5.5% *Previous Book value
		A	B	C	D=C-B	E	F	G=F-E
		Date	Cash Received	Interest Revenue	Amortization of Discount	Credit Balance in Bond Discount Account	Debit Balance in Bond Receivable Account	Carrying Value of investment
		Jan1,2021				$89,625	$1,500,000	$1,410,375
		July1,2021	$75,000	$77,571	$2,571	$87,054	$1,500,000	$1,412,946
		Jan1,2022	$75,000	$77,712	$2,712	$84,342	$1,500,000	$1,415,658
		July1,2022	$75,000	$77,861	$2,861	$81,481	$1,500,000	$1,418,519
		Jan1,2023	$75,000	$78,019	$3,019	$78,463	$1,500,000	$1,421,537
		July 1,2023	$75,000	$78,185	$3,185	$75,278	$1,500,000	$1,424,722
		Jan1,2024	$75,000	$78,360	$3,360	$71,918	$1,500,000	$1,428,082
	Interest Revenue on July 1, 2021=1410375*5.5%=	$77,571
	Interest Revenue on Dec 31, 2021=1412946*5.5%=	$77,712
	Total Interest Revenue for the year	$155,283
	ANSWER:	$155,283