Answer:
Debt securities Carr Corp. 500,000 debit
Cash 487,706.69 credit
Discount on D.S Carr Corp. 12,293.31 credit
--to record the purchase of the dbet securities--
Cash 27500.00 debit
Discount on D.S Carr Corp. 2048.88 debit
interest revenue 29.548,88 credit
--to record under straitgh-line method --
Cash 27,500.00 debit
Discount on D.S Carr Corp . 2,224.99 debit
interest revenue 29,724.99 credit
--to record under effective rate method --
ATTACHED SCHEDULED
Explanation:
The difference between the face valeu and the actual price will be the discount or premium being discount, when lower and premium when higher.
500,000 - 487,706.69 = 12,293.31
Effective rate will calculate the interest revenue by multipling the carrying value by the market rate
and the amortization in the discount will be the difference with the actual cash proceeds
Straight-line will divide the discount over the total amount of payments due and do the same amount over time:
12,293.31 / 6 = 2048.885
