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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Investment Discount Amortization Schedule On January 1, 2019, Rodgers Company purchased $200,000 face value, 10%, 3-year bonds for $190,165.35, a price that yields a 12% effective annual interest rate. The bonds pay interest semiannually on June 30 and December 31.

Required:

  1. 1. Record the purchase of the bonds.
  2. 2. Prepare an investment interest income and discount amortization schedule using the effective interest method.
  3. 3. Record the receipts of interest on June 30, 2019, and June 30, 2021.

1.

To determine

Prepare the journal entries to record the bonds purchase.

Explanation

On January 1, 2019, Company R purchased a bond with a par value of $200,000 for $190,165.35. Hence, the amount of discount is $9,834.65($200,000$190,165.35). The bond carries 10% interest rate, and it will be paid semiannually on June 30 and December 31, until the maturity date of December 31, 2021. The effective interest rate is 12%.

Prepare journal entries in the books of Company R

2.

To determine

Prepare an investment interest income and bond discount amortization schedule using the effective interest rate of bond amortization.

3.

To determine

Prepare journal entries to record the receipts of interest on June 30, 2019, and June 30, 2021.

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