On July 1, Year 4, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face

Question

On July 1, Year 4, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds are classified as held-to-maturity, mature on June 30, Year 14, and pay interest semiannually on June 30 and December 31. Using the interest method, Pell recorded bond discount amortization of $1,800 for the 6 months ended December 31, Year 4. From this long-term investment, Pell should report Year 4 revenue of A. $21,800 B. $18,200 C. $20,000 D. $16,800 On July 1, Year 4, Pell Co. purchased Green Corp. 10-year, 8% bonds with a face amount of $500,000 for $420,000. The bonds are classified as held-to-maturity, mature on June 30, Year 14, and pay interest semiannually on June 30 and December 31. Using the interest method, Pell recorded bond discount amortization of $1,800 for the 6 months ended December 31, Year 4. From this long-term investment, Pell should report Year 4 revenue of A. $21,800 B. $18,200 C. $20,000 D. $16,800

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Interest Revenue = Bond Income + Amount of Discount Amortized

Bond Income for the Period Jul 1 till Dec 31 4th Year = 500000*8%*1/2 = 20000

Amount of Discount Amortized = 1800 (given)

Interest Revenue = 20000 + 1800 = 21800

Option A (21800) is the correct answer.

Thanks.

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