1. Explanation Effective interest amortization method: The amortization method which applies the market rate of interest to calculate the interest and the amortization of bond discount or premium for a particular period of time is known as effective interest amortization model. Straight-line bond amortization: The method of bond amortization by distributing the bond discount amount over the interest period equally is known as straight-line amortization of bond. (a) Prepare an investment interest income and discount amortization schedule using the straight line method : Company T Bond investment interest income and Discount amortization Schedule (Partial) Straight line method Date Cash (Debit) (a) Investment in debt securities (Debit) (b) Interest income (Credit) (c) Carrying value of debt securities (d) January 1, 2019 487,706.69 July 1, 2019 27,500.00 2,048.89 29,548.89 489,755.58 January 1, 2020 27,500.00 2,048.89 29,548.89 491,804.47 July 1, 2020 27,500.00 2,048.89 29,548.89 493,853.36 January 1, 2021 27,500.00 2,048.89 29,548.89 495,902.25 July 1, 2021 27,500.00 2,048.89 29,548.89 497,951.14 January 1, 2022 27,500.00 2,048.86 29,548.86 500,000.00 Table (1) Working note (1): Calculate the amount of cash: Cash ( a ) = $500,000 × 11% × 6 months 12 months = $ 27 , 500 (11% is bonds stated interest rate) Working note (2): Calculate the amount of investment in debt securities: Investment in debt securities ( b ) = Discount 6 semiannum = $ 12 , 293.31 6 = $ 2 , 048 2. To determine Record the journal entries for the interest income under both methods in the books of Company T.

3rd Edition

ISBN: 9781337909402

Author: PAGACH

Publisher: VST

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Question

100%

Chapter 13, Problem 2P

To determine

Prepare an investment interest income and discount amortization schedule using the:

(a) Straight-line method

(b) Effective interest method

To determine

Record the journal entries for the interest income under both methods in the books of Company T.

Expert Solution & Answer

Chapter 13 Solutions

EBK INTERMEDIATE ACCOUNTING: REPORTING

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