On January 1, 2016, Rupar Retailers purchased $100,000 of Anand Company bonds at
ID: 2416230 • Letter: O
Question
On January 1, 2016, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2016 journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:
Explanation / Answer
Answer: $3,336.
It is cash receipt of $3,000 + amortization of discount of 336
The discount amortization schedule is given below:
Ist half 2nd half 2016 2016 Opening Balance 95000 95325 interest @ 3.5% 3325 3336 total 98325 98661 receipt 3000 3000 closing balance 95325 95661 discount opening 5000 4675 less: amortized 325 336 discount closing 4675 4339