$63,588. $62,113. $62,052. $60,000. Patton Company purchased $600,000 of 10% bon

Question

       $63,588.
       $62,113.
       $62,052.
       $60,000.

Patton Company purchased $600,000 of 10% bonds of Scott Co. on January 1, 2013, paying $564,150. The bonds mature January 1, 2023; interest is payable each July 1 and January 1. The discount of $35,850 provides an effective yield of 11%. Patton Company uses the effective-interest method and plans to hold these bonds to maturity.

For the year ended December 31, 2013, Patton Company should report interest revenue from the Scott Co. bonds of: (Points : 2)

Explanation / Answer

Schedule of Bond Discount Amortisation for the Year 2013

Effective Interest Method – Semi-annual Interest Payment

Date

Cash Received

(b)

Interest Income

(‘c )

Discount Amortised

Carrying Amount of Bonds

Jan 1,2013

564,150

July 1,2013

30,000

31,028

1,028

565,178

Dec 31,2013

30,000

31,085

1,085

566,263

62,113

(‘b) 600,000 x 0.10 x ½ = 30,000 -

(‘c) = 564,150 x 0.11 x ½ = 31,028 - / 565,178 x 0.11 x1/2 = 31,085

(‘d) 31028-30000 = 1028

(‘e) 564150+1028 = 565,178

Hence Interest revenue for the year 2013 = $62,113

Date

Cash Received

(b)

Interest Income

(‘c )

Discount Amortised

Carrying Amount of Bonds

Jan 1,2013

564,150

July 1,2013

30,000

31,028

1,028

565,178

Dec 31,2013

30,000

31,085

1,085

566,263

62,113

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