Question

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effectiveinterest method and plans to hold these bonds to maturity. 5. On July 1, 2011, Patton Company should increase its Held-to-Maturity Debt Securities account for the Scott Co. bonds by

Answer 1

Answer:

$685.55

Explanation:

Patton company ;

Bond payments $376,100 × 0.055

= $20,685.55

Less face amount $400,000 × 0.05

= $20,000

Held-to-maturity debt securities $685.55

($20,685.55 - $20,000)

Note:

Effective yield(market rate)

= 11% ÷ 2

= 5.5%

Bonds

= 10% ÷ 2

= 5%