29. On January 1, 2016, Rupar Retailers purchased $100,000 of Anand Company bond

Question

29. 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 January 1 and July 1 of each year. Rupar accounts for theb investment, and uses the effective interest method. In Rupar to record the second period of interest, Rupar would record a credit to interest revenue of: 's December 31, 2016 journal entry .h $3,336, $3,325. $3,000. $3.500. e c

Explanation / Answer

Journal entry of second period of interest,

Particulars Dr Amount Cr Amount Cash Account Dr ( $100,000 ) x (0.06 / 2 ) $3,000 Discount plug $336 To Interest Revenue ( $100,000 - $5,000 + $325 first period interest) x (0.07 / 2 ) $3,336

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