Use the following information for questions 7 and 8 On January 3, 2017, Moss Com

Question

Use the following information for questions 7 and 8 On January 3, 2017, Moss Company acquires $500,000 of Adam Company's 10-year, 10% bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. The fair value of the bonds at December 31, 2018 is $525,000. 7. Assuming that Moss Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2018 related to these bonds? 8. At December 31, 2018, the bond investment should be on the balance sheet at

Explanation / Answer

Part - (7) Interest revenue for 2018 = $(532,090*9%*363)/365 = $47,626 Part - (8) Bond investment at Dec 31,2018 Price of Bond             532,090 Less : Amortization of Premium                 2,374 Bond investment at Dec 31,2018             529,716 Premium on Bond = $(532,090-500,000) = $32,090 Amortization of Premium for 1st year = (Interest received-Interest revenue) = (50,000-47,626) =                 2,374

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