Use the following information to answer the next __3__ questions. On January 1,

Question

Use the following information to answer the next __3__ questions. On January 1, 2017, Pell Company bought bonds issued by Green Company. The bonds had a face value of $1,000,000, contract rate of 10%, and were for 20 years. Pell paid $1,198,000 for the bonds, an 8% yield. Interest is received each year on December 31.

5. How much cash does Pell receive on December 31, 2017?

a. $100,000 b. $119,800 c. $80,000 d. $95,840

6. If Pell uses the effective interest method of amortizing premium or discount, how much interest revenue does Pell record for 20107?

a. $100,000 b. $119,800 c. $80,000 d. $95,840

7. What is the balance of the account Investment in Bond – Available-for-sale at December 31, 2017 after the interest journal entry is made?

a. $1,000,000 b. $1,198,000 c. $1,193,840 d. $1,174,040

Explanation / Answer

5. Cash does pell received on decmeber 31,2017 = 1000000*10% = 100000

so answer is a) $100,000

6) Interest revenue record = 1198000*8% = 95840

so answer is d) $95840

7) Balance in account investment in bonds available for sale :

Balance = 1198000-(100000-95840) = 1193840

so answer is c) $1193840

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects