54) On January 1, 2017, Carmello Corporation purchased 4% bonds with a face valu

Question

54) On January 1, 2017, Carmello Corporation purchased 4% bonds with a face value of$100,000 for $92,000. Carmello Corporation intends to hold the bonds until the maturity date of January 1, 2027. Interest is paid semiannually on January 1 and July 1. The company uses the straight-line amortization method for discounts and premiums. What journal entry(ies) is(are) prepared on July 1, 20177 A) debit Cash $2000 and credit Interest Revenue $2000; debit Held-to-Maturity Investment in Bonds $400 and credit Interest Revenue $400 B) debit Interest Receivable $2000 and credit Interest Revenue $2000; debit Held-to-Maturity Investment in Bonds $400 and credit Interest Revenue $400 C) debit Cash $2000 and credit Interest Receivable $2000 D) debit Cash $4000 and credit Interest Revenue $4000

Explanation / Answer

Answer: a)

Cash (debit) $2,000

Interest Revenue (Credit) $2,000

Held-to-maturity (Debit) $400

Interest Revenue (Credit) $400

(100,000-$92,000)/(10x2) = $400

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