Explanation:
An investment kept to maturity (HTM) purchased at a discount will increase its valuation as maturity comes, which ensures that the book value of the investment should be the fair market value of the investment. The lender bears and reports the expenditure at amortized costs throughout the duration of an HTM fund.
The interest and amortization entries for the two years 2014 and 2015 that lead to the correct ending balance at December 31, 2015, are:
December 31, 2014:
DR: Interest receivable .08($500,000) 40,000
DR: Discount on HTM bonds 5,620
CR: Interest revenue .10($456,200) 45,620
December 31, 2015:
DR: Interest receivable .08($500,000) 40,000
DR: Discount on HTM bonds 6,182
CR: Interest revenue .10($456,200 + $5,620) 46,182
Thus, the ending net investment balance at December 31, 2015, is $456,200 + $5,620 + $6,182 = $468,002, or $468,000 (rounded to the nearest $100 as required by the problem).
